Gold Blast-off. London Drained

Gold futures climbed to a new record high last week as investors sought safe-haven assets amid a softer U.S. dollar and lower Treasury yields. Meanwhile, London is being drained of its physical gold on tariff fears.

Goldman Sachs is recommending its clients to invest in gold to escape the risks of tariffs. They see a significant likelihood that copper, aluminium and steel could be hit with heavy tariffs. Therefore, commodities should be rolled into a more stalwart commodity, such as gold.

Here is Gold priced in AUD, which touched $4,528 an ounce:

The fourth-quarter GDP figures released earlier last week showed disappointing economic growth, pressuring the dollar and giving gold additional support. A weakened dollar usually supports gold by lowering the cost of dollar-priced commodities for buyers using other currencies. Additionally, yields on U.S. Treasurys slipped following Wednesday’s Federal Reserve decision to hold interest rates steady.

Market expectations now price in two interest-rate cuts before the end of the year. That creates an environment that favours non-interest-bearing assets like gold. Similar rate reductions by the Bank of Canada on Wednesday and the European Central Bank on Thursday have further strengthened gold’s appeal. Even if the U.S. is not expanding its money supply, other countries and regions are.

Some analysts are expecting inflation shocks tied to Trump’s policy initiatives. Commodities often serve as an inflation hedge, and the bank foresees several inflationary pressures spurred by Trump’s policy proposals. Among these proposals, the largest is the impending 25% tariffs on goods from Mexico and Canada, set to take effect in the coming days. Further tariff threats on China, Europe, and key commodities add to concerns about global economic stability.

Gold’s upward momentum has also been fuelled by a tremendous rise in gold borrowing from central banks storing metal in London. Recent shipments to the U.S. have drained London-based bullion supplies, a response to fears that any additional import tariffs might impact gold flows. Looking ahead, some analysts project even loftier prices for the precious metal.

Watch the Ainslie Insights video discussion of this article here: https://www.youtube.com/watch?v=1Whf76h8RKw