Gold's comeback: Why the world is turning to the yellow metal in 2025
1) US-China tariff negotiations
2) Confidence in the US dollar
3) Fed autonomy & US interest rates
What do North America, Europe, and Asia have in common right now? Well, apart from unnerving stock market volatility, it's their preference for gold. According to data from the World Gold Council, flows into Gold Exchange Traded Funds from these regions touched $21 billion in Q1 2025 — the largest quarterly inflow since the first quarter of 2022.Despite the many economic and geopolitical differences between the regions, investors seem to agree on one thing — the relevance of gold in investment portfolios . And they have good reason to.To recap, President Trump' s aggressive trade policies have stoked inflationary and recessionary fears in the United States, as well as world over, as disrupted supply chains and trade relations are expected to put upward pressure on commodity prices and hurt trade and commerce. Stock markets have sharply corrected in response.Usually, such equity market upheavals trigger a flow of investor money into the US dollar, US government bonds and gold which are considered relatively stable avenues to park funds. But this time, considering the policy uncertainty and grim economic outlook in the US, investors have been shunning US based assets and opting for gold and other leading international currencies and bonds. The result has been the remarkable ~25% rally in gold prices since the start of this calendar year - which has not only been rewarding from a returns perspective but has also cushioned multi-asset portfolios from sharp drawdowns.Now with Akshaya Tritiya 's gold-buying tradition around the corner, the question is what next for gold? Has gold run up too much and is a correction on the cards? Or is the outlook still promising? Well, three key global factors are set to impact international gold prices and in turn domestic gold prices in the near to medium term:With the two largest economies embroiled in a tit for tat trade war, a mutually beneficial trade deal will not be easy to arrive at. If unexpectedly productive negotiations ease tensions, gold prices may face pressure in the short run. But if there is a prolonged period of friction or if talks collapse and tensions escalate, risk sentiment will be hurt, stock markets may tumble and gold will continue to benefit.The United States has been the leader of the liberal, globalized world. But that seems to be changing with the country, under Mr Trump's presidency, opting out of geopolitical partnerships, international cooperation agencies as well as free trade agreements. This has put a question mark on the US's and thus US dollar's hegemony.This decline in confidence has been underway since the Russia-Ukraine war broke out and led the US to freeze Russia's US-based assets. This made other countries nervous about holding reserves in the form of US assets and resulted in a strategic change to diversify reserves away from the US dollar and into gold.Global central banks have bought over 1,000 tonnes of gold for three consecutive years since 2022, and the buying momentum is strong in 2025 too, creating a structural tailwind for gold prices. If policy making in the US continues to increase trust deficit, dollar assets held by foreigners may leave US shores where gold can be one of the beneficiaries.The US central bank - the Federal Reserve - which determines US interest rates is in a tricky spot. With higher tariffs on imported goods, inflation in the US is expected to go up. At the same time, expectation of higher prices is likely to slow down consumption of goods and services and the policy uncertainty is expected to weigh on business sentiment – both slowing down the economy.If the Fed were to cut interest rates now, inflation could get fired up on the back of lower borrowing costs. But lower borrowing costs are needed to support consumption and business investment and avoid a US recession. With President Trump pressuring the Fed to cut rates, Fed independence is in question, and lower US interest rates and thus potentially higher US inflation are on the horizon – both being bullish for non-yielding gold.So, while gold has taken a breather for now, fundamentals are looking supportive of gold and investors would do well to buy the dip this Akshaya Tritiya. A 10-15% portfolio allocation to Gold Exchange Traded Funds or via the Gold Savings Fund is ideal to navigate this complex geopolitical and macroeconomic environment, marked with equity market volatility. Because as POTUS recently said, 'he who owns the gold makes the rules.'(Author of the article is Chirag Mehta , CIO at Quantum AMC): Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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