Gold prices reached a new peak on Wednesday, following a warning from AI chip behemoth Nvidia that its earnings would face a $5 billion blow due to intensifying conflicts between the U.S. and China. On Wednesday afternoon, gold futures contracts saw a surge of over 3%, soaring to approximately $3,350 an ounce – a record-breaking value.
Gold prices have shown an impressive incline of over 25% since the dawn of the year, as investors have sought refuge in safer investments in the face of the unpredictable consequences of tariffs and the economic impact expected to follow. All but one week of the first quarter saw net inflows into Gold ETFs, with demand soaring to levels not seen since 2022, both in late February and again at the end of March.
President Trump's recent declaration of extensive "reciprocal" tariffs could drive demand even higher in April. Following Trump's tariff declaration, Bank of America surveyed fund managers, 49% of whom labelled "long gold" as Wall Street's most overpopulated trade. It was the first time in two years that the BofA Global Fund Manager Survey did not consider "long Magnificent Seven" the most sought-after trade. A significant percentage of fund managers (42%) predict that gold will be 2025’s top-performing asset.
UBS analysts expressed their sentiments on Monday, stating, "With increasing uncertainty about tariffs, weaker growth, higher inflation, geopolitical risks & diversification away from US assets & the US dollar, the argument for investing in gold allocations has never been stronger."
Although recognising the historically poor performance of gold miners, the analysts remained upbeat about gold equities. Shares of Newmont (NEM) and Barrick Gold (GOLD) mirrored the ascension in gold prices on Wednesday.
The World Gold Council, a trade association for gold miners, has posited a few reasons as to why the recent surge in gold prices should endure. Demand from central banks has been crucial in driving up gold prices in recent years, and researchers believe this will continue. Moreover, investors have historically been underexposed, with gold ETFs making up a mere 1.6% of all U.S. ETFs. This is in stark contrast to the 7.6% they comprised in 2011, during a similar gold rally. The end of the White House's 90-day tariff respite looms, which is likely to keep geopolitical and economic uncertainty elevated.
Several risks to the gold rally do exist. There is a possibility that soaring prices may stifle demand from investors and central banks, while the heightened risk of a liquidity crisis could push investors to offload gold in order to meet margin calls. The resolution of trade tensions via bilateral agreements could also rekindle investors' appetite for risk, forming a potential obstacle for gold.