Gold prices soar to one-month highs: what’s supporting the rally?

Gold prices are back above the $2,700 per ounce mark on Friday as increased safe-haven demand boosted sentiments. 

Prices have climbed to a near one-month high on Friday because of uncertainty over US interest rates and trade tariffs by the US President-elect Donald Trump. 

Gold bulls have been largely ignoring the strength in the dollar index.

A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers, thereby limiting demand. 

At the time of writing, the February gold contract on COMEX was at $2,703.59 per ounce, up 0.5% from the previous close. 

Silver futures on COMEX were also higher at $31.122 per ounce, up 0.4% from Thursday’s close. 

Both gold and silver have been rising this week due to increased safe-haven inflows, according to experts. 

Trade jitters spur demand

Gold spot prices were trading nearly 2% higher from the close of last week. 

Markets were on the edge ahead of the release of the US non-farm employment change report due later on Friday. 

The data would give more cues to the market about the Federal Reserve’s interest rate cutting path in the coming months. 

The uncertainty over trade tariffs by Trump has also spurred some safe-haven demand in the dollar. 

Both gold and the dollar “show strength at the same time when both are being sought as safe haven investments in the face of an uncertain global political situation,” Barbara Lambrecht, commodity analyst at Commerzbank, said.

This currently appears to be the case, even if some of the global uncertainty stems from the US and the President-elect himself.

“The inauguration of Donald Trump on 20 January is unlikely to change this, at least in the short term, which is why gold should remain supported,” she added. 

Focus on Fed

The minutes from the US Fed’s last meeting showed that the policymakers were cautious about cutting interest rates further. 

The cautiousness was due to a resilient economy and sticky inflation in the US.

The labour market also remained relatively stable in the US. 

More economic data from the US later on Friday could lend cues to the gold price. 

Fed officials were also seen expressing some concerns over inflationary pressures from protectionist and expansionary policies under Trump.

Uncertainty over his plans is expected to build ahead of his inauguration on January 20. 

Trump’s plans are expected to feed into higher inflation, which would then prompt the Fed to slow down its monetary easing. 

Elevated interest rates reduce the appeal of non-yielding metals such as gold and silver. 

Global gold ETFs

According to data from the World Gold Council (WGC), gold ETFs recorded outflows of 6.8 tons last year. 

The outflows are therefore significantly smaller than the 85 tons reported by Bloomberg, as the WGC takes a larger number of ETFs into account, according to Commerzbank.  

As the gold price rose sharply at the same time, the asset value of ETF holdings (AUM) increased by $56 billion compared to the previous year despite the outflows. 

ETFs listed in Europe experienced outflows of 98 tons last year.

However, inflows were recorded in North America and Asia. 

Inflows of 8 tons were recorded in North America and about 78.4 tons in Asia, according WGC data.