Gold's surge to a fresh record high is being fuelled by fears of an escalating global trade war instigated by US President Donald Trump.
But behind the froth created by the mercurial US leader, there are structural shifts that are creating a bullish backdrop for the precious metal.
Spot gold climbed to an all-time high of $2,942.70 an ounce during Tuesday's Asian trade, eclipsing the previous peak of $2,911.30 set on Monday and marking the eighth record set so far in 2025.
Gold has been in an uptrend for the past 16 months, having rallied by 63% since the low of $1,809.50 an ounce on Oct. 23, 2023.
The rally has accelerated since Trump was elected in November for a second term in the White House, with an increase of 16% since the low of $2,536.71 an ounce on Nov. 15.
Investors are turning to gold as a safe haven amid rising uncertainty as Trump unleashes a variety of trade tariffs and threatens more to come.
In the latest announcements, the United States imposed a 25% tariff on imports of aluminium and steel, cancelling exemptions for major suppliers such as Canada and Brazil, Reuters reported.
Trump has also imposed a blanket 10% tariff on imports from top trading partner China and threatened a 25% barrier on all imports from Canada and Mexico, as well as suggesting new tariffs on imports of cars, computer chips and pharmaceuticals.
The rising US tariffs and then likelihood of retaliation by other countries threatens to slow global economic growth, boost inflation and tighten monetary policy.
Investors are responding by buying gold, with money flowing into exchange-traded funds (ETFs).
The largest gold ETF, the SPDR Gold Trust saw its holdings jump to 27.92 million ounces on Feb. 7, up 1.3% since the recent low of 27.55 million on Jan. 27.
While trade headlines are likely driving the current lift in prices, there are other factors that support a bullish narrative.
GOLD'S THREE LEGS
Gold has in the past two decades been largely driven by three factors, with the strongest gains coming when all three were pulling in the same direction.
The three drivers are consumer demand in China and India, central bank buying, and investment flows.
Perhaps the most important of the three legs of gold's stool in recent years was consumer demand in China and India, which together account for just over half of global consumer demand, according to data from the World Gold Council (WGC).
China's consumer demand for gold was 815.5 metric tons in 2024, which was down 10% from 2023, while India's was 802.8 tons, up 5%.
The combined total of the two top buyers was 1,618.3 tons, which is 53% of the world total consumer demand.
While China and India still dominate consumer demand, momentum has eased in recent years and it's likely that the two are transitioning from being the driver of the gold price to providing a floor for demand when prices retreat.
This leaves the other two legs as the current drivers of the gold price, and both are somewhat less predictable.
Central bank buying has been strong for the last three years with WGC data showing net purchases of 1,044.6 tons in 2024.
While this was down slightly from 1,050.8 tons in 2023 and 1,082 tons in 2022, it was the third year that central bank inflows were above 1,000 tons.
This rate is more than double the annual average of 473 tons between 2010 and 2021, and shows the increasing role of central banks in driving gold demand.
However, given that central bank buying is determined by policy rather than market dynamics, predicting its path is difficult.
That said, Trump's often erratic and contradictory policies are likely to encourage more countries to build financial reserves outside of US assets like Treasuries, which may keep demand at a high level in 2025.
The third leg of investment flows are also driven partly by a desire for diversification, but also by safe-haven flows and as a hedge against inflation.
It's here where Trump's policies are likely to prove most supportive of gold, but there is a large caveat as the U.S. president has shown he can pivot rapidly, and this unpredictability is likely to boost gold's volatility this year.
The views expressed here are those of the author, a columnist for Reuters.
