Gold prices have significantly increased by 37% since the beginning of this year. This sharp rise is attributed to several economic and political factors that have increased the appeal of the precious metal as a safe haven for investors. The most notable of these reasons are as follows:
1: Central Bank Purchases
Central banks continued to boost their reserves of precious metal despite rising prices. During July, global central banks added around 10 tons to their global reserves, according to the World Gold Council, reflecting continued official demand for gold as a strategic asset that provides protection against economic volatility and diversify reserves.
For instance, the National Bank of Kazakhstan increased its reserves by 3 tons, while the Central Bank of Turkey, the People’s Bank of China, and the Czech National Bank each added around 2 tons in July. The Chinese central bank raised its gold hoard to 74.02 million fine troy ounces at the end of August, extending buying of bullion into a 10th straight month.
2: Trade Woes
Trade tensions, more specifically the tariffs imposed by U.S. President Trump on major countries have yielded in an economic uncertainty and turbulence in global financial markets. This climate has prompted investors to resort to gold as a refuge asset, thereby adding more momentum to the yellow metal’s surge.
3: Geopolitical Tensions
Geopolitical tensions have played a pivotal role in determining global gold market trends. The ongoing war between Russia and Ukraine and unrest in the Middle East have lifted uncertainty, thereby reinforcing investors’ preference for gold as a strategic option to protect their assets.
4: Dollar’s Weakness
The decline in the strength of the dollar is one of the key factors behind the rise in gold prices since the beginning of the year. This weakness came as a result of investors’ lack of confidence in U.S. assets due to Trump’s policies, worries about the Federal Reserve’s independence, and expectations of a Fed interest rate cut this month.
The US dollar index has fallen by around 10% since the beginning of this year, while yields on 10-year and 2-year U.S. Treasury bonds have fallen, directly reflecting the expected changes in monetary policy.
Trump has undermined confidence in the Fed’s independence by first pressuring Fed Chair Jerome Powell to cut interest rates, then claiming to have fired Governor Lisa Cook—sending a stark warning to FOMC members that unless they comply with his demands for rate cuts, their positions could be at risk.
Technically speaking, gold has posted a notable rise after breaking through the symmetrical triangle and stabilizing above it, which has supported its bullish trend. The yellow metal is currently targeting the triangle’s first target at $3704, noting that if it manages to break above it may continue its rise towards the second target at $3785.
On the downside, if gold fails to maintain its current gains, it may retest the weekly pivot point at $3541. If prices stabilize below this level, a corrective downward wave could dump prices to the key support levels of $3482 then $3378.
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On the economic front, attention is turning to the U.S. consumer price index for August, a crucial gauge of inflationary pressures. Due on Thursday, the data from the Labor Department’s Bureau of Labor Statistics is anticipated to show that prices grew at an annual rate of 2.9% in August, accelerating from 2.7% in July.
At this level of inflation, the Federal Reserve is likely to face dual threats to its primary goal of full employment and maintaining price stability, given that its long-term inflation target is near 2%.
Meanwhile, investors are pricing in a 10% chance of an outsized 50-basis-point rate reduction from the Fed this month, compared to a zero probability a week ago, according to the CME FedWatch tool.