Is gold entering the final blow-off phase after a record run?

14/04/2025 04:31 AST

After breaching $3,200 an ounce last week for the first time, gold prices appear to be in a climatic blow-off phase, with a brief spike above $3,300 likely before a significant correction between 10 per cent and 20 per cent, according to market analysts.

The current volatile landscape has been largely influenced by the economic uncertainty stemming from US President Donald Trump's controversial tariff policies, which have sent shockwaves through global financial markets.

Initially dipping below $3,000 in the wake of tariff announcements, gold quickly reversed course, climbing significantly as investors flocked to the precious metal, traditionally viewed as a safe haven during turbulent times. This price movement has also buoyed gold miners, who experienced a turbulent week with swings of up to 15 per cent, ultimately finding new highs amidst the chaos. However, precious metal analysts caution that this current breakout may not be sustainable, warning that those chasing the recent price surge could find themselves ensnared in a typical bull trap.

Year-to-date, gold prices have soared by more than 22 per cent, prompting financial institutions like UBS and Commerzbank to revise their forecasts upwards. These adjustments reflect a broader trend wherein investors are increasingly turning to gold as a hedge against the uncertainties created by Trump's aggressive trade policies.

Vijay Valecha, chief investment officer at Century Financial, noted the significant role of a weakening US dollar and rising demand for safe-haven assets, particularly amid the escalating trade tensions between the US and China. The dollar's decline of nearly 1 per cent against major currencies has made gold, priced in dollars, more affordable for international buyers.

"The evolving narrative surrounding gold - as both a refuge from economic turmoil and a potential catalyst for future financial dynamics-remains a focal point for investors in these uncertain times," says a Dubai-based bullion trader.

Trump's tariffs have not only unsettled markets but have also heightened fears regarding inflation and a potential global recession. While some duties have been paused, the administration has imposed a staggering 145 per cent tariff on Chinese imports, prompting Beijing to retaliate with a 125 per cent tariff on US goods. Such aggressive moves have led to a palpable sense of instability in the market, with analysts grappling to predict the long-term implications of these policies.

In the midst of this turmoil, UBS analysts have expressed optimism about gold's trajectory, suggesting that the rally could extend into the next year, with prices stabilising at elevated levels. They forecast that gold could reach $3,500 per ounce within the year. This prediction comes as the US dollar has fallen to a three-year low against the euro, exacerbating the appeal of gold, which recently surged past $3,250. The current rally marks the best weekly performance for gold since 2020, underscoring the metal's growing prominence amidst economic uncertainty.

Peter Schiff, chief market strategist at Euro Pacific Asset Management, argues that the recent surge in gold prices signifies more than just a fleeting flight to safety; it represents a fundamental shift in global capital dynamics. "Gold was going much higher," Schiff stated, reflecting on the historical context of gold prices.

He recalled his earlier projections from 2009, when he anticipated gold would eventually reach $5,000 per ounce, a forecast that now seems increasingly plausible given the expansive monetary policies and burgeoning debt levels plaguing the global economy. "At this point, $5,000 is nothing. That's just a pit stop on the road to much, much higher prices," he asserted.

Moreover, the trend of aggressive gold purchases by central banks further indicates a strategic pivot away from the dollar as the dominant global reserve currency. Schiff believes that these institutions are preparing for a future in which the dollar may no longer hold the central position in the monetary system, a sentiment echoed by many analysts observing the shifting landscape of international finance.

As the dust settles from Trump's latest announcement of sweeping tariffs, investors are left to navigate the complexities of an increasingly unpredictable market. The interplay between geopolitical tensions and financial markets will continue to shape the outlook for gold, with many analysts advocating for a cautious approach as prices approach potential peaks.

Khaleej Times