Continued geo-economic uncertainty is playing in favour of Gold: WGC

NEW DELHI: Continued uncertainty in the geo-economic situation indicates the trend of rising inflation, which goes in favour of gold, according to the World Gold Council (WGC).

“Rising inflation expectations, lower rates, and continued geo-economic uncertainty are playing in gold’s favour,” said WGC.

Gold prices have been on an upward trend, with February seeing multiple new highs before pulling back to end the month at USD 2,835 per ounce, marking a 0.8 per cent increase, according to the WGC.

The rise in gold prices has been supported by continued inflows into COMEX inventories, driven by ongoing tariff uncertainties. This trend has been observed across global currencies, with many hitting record highs.

One of the primary factors driving gold’s price surge has been the weakening US dollar, according to the Gold Return Attribution Model (GRAM).
Additionally, increased geopolitical risks and falling interest rates have contributed to gold’s strong performance in the past few months.

Despite a slight drag from January’s price appreciation, gold’s safe-haven appeal remained strong, as evidenced by record-high net inflows of USD 9.4 billion (100 tons) into gold exchange-traded funds (ETFs) – the highest since March 2022. These inflows were led by US- and Asia-listed funds.

The previously dominant “Trump trade,” characterised by a stronger US dollar and booming stock markets, has taken a back seat due to growing concerns over tariffs and aggressive foreign policies.

These factors have created a supportive environment for gold, with risk-off assets such as US Treasuries and gold gaining popularity among investors.
At the same time, global economic uncertainty is rising. Governments worldwide are expected to increase military spending, leading to larger budget deficits and potential credit rating downgrades. This combined with inflationary pressures, is shaping a favourable outlook for gold.

Additionally, markets are expecting a more dovish Federal Reserve, with at least two interest rate cuts anticipated by the end of the year. Lower interest rates typically make gold more attractive as it does not yield interest, making it a preferred investment in times of economic uncertainty.
Investor sentiment is also shifting as concerns over inflation continue to grow. Tariffs, immigration policies, and tax cuts could drive inflation higher, adding further support for gold.

Consumer sentiment in the US has already shown signs of weakening, with surveys indicating declining confidence. Additionally, changes in immigration policies and potential federal job cuts could impact labour costs, adding another layer of uncertainty to the economic outlook.

Geopolitical tensions, particularly surrounding the ongoing Russia-Ukraine conflict, are further fuelling investor nervousness. European nations are considering increased defence spending, which could lead to higher deficits and borrowing costs.

The UK has already committed to boosting its defence budget, and similar discussions are ongoing in Germany. If a resolution to the Russia-Ukraine conflict is reached, the geopolitical risk premium on gold could decline, but for now, gold remains well-supported amid global uncertainty. (ANI)