Stagflation and geopolitical tensions fuel renewed demand for gold

Key points in this update:

• Global financial markets are on both a technical and an emotional edge as Trump's tariffs have gone forward, the result being stock market and dollar weakness, lower bond yields and higher gold prices
• The yellow metal, following another relatively shallow correction, has resumed its ascent, currently trading back above USD 2900 with traders once again setting their sights on the psychologically significant USD 3,000 level
• Traders and investors are also reacting to a sharp and sudden deterioration in US economic data, raising the risk of a gold-supportive stagflation period
• Activity across exchange-traded funds and the COMEX futures market paints a picture of a trade that is not yet saturated.

Global financial markets are on both a technical and an emotional edge as Trump's tariffs have gone forward, and speculation swirls that he will announce something particularly dramatic in a speech later today. Given the recent movements across the US stock market and the dollar—which has weakened instead of rising—there is growing speculation that we may be witnessing the beginning of the end of US exceptionalism, as capital flows out of overpriced US stocks into other regions. Notably, Europe appears poised to embark on a massive fiscal expansion, making it an increasingly attractive destination for investment.

Meanwhile, a series of tepid economic reports and the newly implemented US tariffs against major trading partners continue to stress Wall Street. In recent sessions, stocks, bond yields, and the dollar have all moved lower, while gold has climbed higher. The yellow metal, following another relatively shallow correction that failed to challenge key support levels, has resumed its ascent and is now trading back above USD 2,900, with traders once again setting their sights on the psychologically significant USD 3,000 level.

Beyond geopolitical tensions and the potential breakdown of a world order that has prevailed for generations, traders and investors are also reacting to a sharp and sudden deterioration in US economic data. This has led to increased pricing of stagflation risk—a period characterised by lower growth, rising unemployment, and increasing inflation. Forward-looking indicators suggest these developments could materialise in the coming months.

With that in mind, the outlook for gold remains supportive, particularly given the limited depth of the latest correction, which signals strong demand despite selling pressure from technically focused traders. In addition to diversification and safe-haven demand, gold will likely continue to benefit from central bank buying and fiscal debt concerns—persist. With the dollar showing signs of rolling over, another key level of inertia for gold may soon crumble as well, while the risk of an economic slowdown has lifted the expected number of 25 basis-point rate cuts this year to more than three from a January low of just one cut.  

Spot gold trades up 11% year-to-date, with the one-year gain approaching 38%, and while we are acutely aware nothing ever goes in a straight line—perhaps apart from Trump’s crypto pump and dump—we maintain our recently raised target of USD 3,300. During the latest correction attempt, gold managed to bounce before reaching a 0.382 Fibonacci retracement at USD 2,813, let alone the 2024 peak at USD 2,790.