Gold topped lifetime highs, after a retreat of global investors from US assets, especially from the US dollar, which fell to a three year low after President Trump put pressure on the US Federal Reserve for an immediate rate cut.

The US president criticized the US Fed Chair, Jerome Powell, last week, which was seen as a threat to the central bank’s independence and resulted in more pressure on the greenback tumbling it to a three-year low.

The demand for US dollar had been rising and outperformed the rest of the world in the past few years. The global geopolitical uncertainties propelled investors to find safety in the US dollar which is often considered as a global reserve currency.

But as the US tariffs and trade policies have roiled markets and eroded the trust in dollar assets, the US stock market has shed around 11 percent, and the US dollar has lost more than 9 percent since January this year.

Furthermore, followed by Trump’s threat to US central bank chief, the dollar index slid to a low of 97.92, the lowest level last seen since March 2022. The currency fell to a decade low against the Swiss Franc and the Euro strengthened to three-year highs. The Indian Rupee also gained, recuperating from an all-time low of 87.99 level to 85 a dollar last week.

Gold has gained over 30 percent so far this year in both domestic and overseas markets as Trump’s sweeping tariffs and uncertainty over his trade policies eroded the trust in the dollar assets, which drove the demand for traditional safe haven commodities like gold. The US imposed a baseline tariff of a universal 10 percent on all imports into the US and higher tariffs on specific countries. China, Vietnam, Japan, India, Korea and the European Union are facing additional tariffs primarily centered around addressing trade imbalances. China, the world’s second largest economy, reacted to US President’s sweeping tariffs by announcing a retaliatory additional tariff on all goods produced in the US. This moved the US to pile on another duty making the cumulative tariffs on China products increased to 245 percent. However, on April 9, Trump announced a complete pause on tariffs but not for China.

The full-blown trade war after China’s tit-for-tat duty on all American products raised worries of a global recession that drove the demand for gold, which is considered a safe asset during global economic distress.

Flows into the gold backed exchange traded funds and central bank buying have also supported the upswing of gold so far this year.

Gold has been on the bullish territory in the last six years gaining more than 150 percent. Meanwhile, performance of the commodity in the past twelve months was exceptional, reaping more than 60 percent, close to test the psychological level of one lakh per ten grams in the Indian markets.

Looking ahead, as the trade tensions roil markets and erode the trust in US assets, gold continues to be the first preference as a reserve currency, further boosting its demand. Increased ETF and central bank demand will also aid the commodity in the short run. However, easing trade tensions and a recovery in US dollar are likely to put downward pressure on gold but unlikely for major liquidation.

(The author is Head of Commodities at Geojit Investments)

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