Gold Soars to Record High as Trade War Escalates and Inflation Worries Grip Markets

Gold prices surged by over 2% on Friday, hitting a new all-time high of $3,245, as investors sought refuge in the precious metal amidst a rapidly escalating trade dispute between the United States and China, coupled with persistent inflation uncertainty. The flight to safety was further amplified by a significant weakening of the US dollar.

The catalyst for this dramatic market movement came during the North American session when China retaliated against increased US tariffs by imposing a hefty 125% duty on American goods. This response followed US President Donald Trump’s decision to raise tariffs on Chinese products to 145%, igniting fears of a full-blown trade war and its potential ramifications for the global economy. Consequently, investors divested from riskier assets and flocked to safe havens like gold.

Adding to the bullish sentiment for bullion was the marked decline of the US Dollar Index (DXY), which plummeted to 99.01, its lowest level since May 2022. A weaker dollar makes gold, which is priced in US dollars, more attractive to international buyers, further fueling its upward trajectory.

Economic data released during the session painted a mixed picture but ultimately reinforced concerns about future economic stability. While US producer price inflation edged lower in March, core inflation remained stubbornly above the 3% threshold. Furthermore, the University of Michigan’s Consumer Sentiment Index revealed a significant drop in consumer confidence in April, accompanied by a surge in both short-term and long-term inflation expectations.

Despite the slightly cooler producer inflation data, the escalating trade tensions are widely expected to be inflationary, potentially complicating the Federal Reserve’s (Fed) policy outlook. While the data might have suggested room for easing, the anticipated inflationary impact of the tariffs could keep the Fed in a “wait-and-see” mode. Consequently, market participants are now largely pricing in three interest rate cuts by the Fed in 2025.

Interestingly, gold’s rally remained unfazed by rising US Treasury yields and real yields. The US 10-year Treasury yield climbed to 4.495%, and US real yields also saw an increase, yet gold continued its upward climb, highlighting its strong safe-haven appeal in the current environment.

Adding to the cautious market sentiment, several prominent US banks, including Wells Fargo, Morgan Stanley, and JPMorgan, have recently expressed increasing concerns about the probability of a recession in the US. Goldman Sachs also revised its recession probability upwards, further bolstering the case for safe-haven assets like gold.

From a technical perspective, gold’s uptrend remains firmly in place. Having decisively broken through the $3,100 and $3,200 levels, buyers are now targeting the $3,250 mark. A sustained break above the current all-time high of $3,245 could pave the way for further gains towards the $3,300 level. Conversely, a drop below $3,200 would initially find support at the April 10 high of $3,176, followed by the $3,100 mark.