Gold rises to all-time high on US-China tariff war, but analysts see more upside to prices
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Spot gold hit a record high of US$2,853.97 on Feb 5.
PHOTO: REUTERS
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SINGAPORE - Gold prices have hit a record high, bolstered by fears of a new trade war between the US and China after Beijing slapped tariffs on US imports in response to new US duties on Chinese goods.
Spot gold on Feb 5 exceeded US$2,870 per ounce for the first time, while US gold futures, which provide an indication of where prices are headed in the future, surpassed US$2,900 per ounce, a new high.
US President Donald Trump said on Feb 4 that he was in no hurry to speak to Chinese President Xi Jinping
Mr Vasu Menon, managing director of investment strategy at OCBC Bank, told The Straits Times that more upside could be in store for gold in 2025.
This is because investors and central banks have been buying the precious metal to diversify their portfolios and protect themselves from global risks.
“Greater geopolitical and economic uncertainties under Mr Trump could benefit safe havens like gold, which is seen as a good portfolio diversifier and a hedge against global uncertainties,” Mr Menon said.
He added that Mr Trump’s upcoming proposed tax cuts will raise further concerns about the US budget deficit and government debt. The US national debt now stands at around US$36 trillion (S$48.6 trillion).
“A further rise in the debt levels under Mr Trump’s watch will worsen the fiscal situation, and this could enhance the appeal of gold as a safe-haven asset.”
UOB head of markets strategy Heng Koon How noted that gold prices are being propelled by rising demand from some central banks in Asia as well as retail investors.
“Both are driven by safe haven needs to diversify, due to rising geopolitical concerns and uncertainties around the US dollar ahead of disruptive trade and fiscal policies from Trump 2.0.”
He added that the strong retail demand for gold is also driven by the depreciation of currencies such as the Indonesian rupiah, Chinese yuan and Vietnamese dong, as gold is seen as a better store of value than these currencies.
There has also been a spike in physical gold deliveries to Comex, a major gold trading platform, while gold premiums in the futures market have been rising, Mr Heng said.
Ms Ipek Ozkardeskaya, senior analyst at Swissquote Bank, added that “there is not a better hedge than gold for protecting a portfolio from Trump worries. The more chaotic international relations become, the greater the demand, especially from central banks looking to reduce US exposure, should Mr Trump turn his focus on them”.
Gold is also seen as an inflation hedge. The Trump administration’s plans for trade tariffs come with inflation risks, with many analysts now arguing that uncertainty over the price outlook calls for slower interest rate cuts than otherwise.
Against that backdrop, UOB’s Mr Heng predicts that spot gold could hit a new record of US$3,000 per ounce by the end of 2025.
“We keep our positive view for gold as long-term safe haven demand needs will likely stay strong amidst a further rise in geopolitical risks and economic risks from Trump 2.0 policies,” Mr Heng said.
Some of that demand has been coming from investors in Singapore.
In 2024, UOB’s Gold Savings Account, which lets retail investors in Singapore invest in gold, saw its holdings increase by 4 per cent, while physical gold traded by clients rose more than 30 per cent, the bank said.
Mr Gavin Chia, chief executive of Moomoo Singapore, noted that since Mr Trump announced tariffs on China, Canada and Mexico from Feb 1, the online trading platform has seen a spike in demand for gold exchange traded funds from local investors.
“We have seen a 100 per cent increase in the average number of orders in the past two trading days (Feb 3 and Feb 4) compared with the average number of orders in the month of January, with the average transaction amount rising nearly fourfold, or 255 per cent, in the same period,” he said.
