After a brief retreat, gold prices are once again breaking records, reaching unprecedented heights fueled by various global economic factorsOn February 24th, spot gold hit an astonishing $2,956.15 per ounce, marking the eleventh new peak of the yearConcurrently, US futures for gold rose by 0.3%, closing at $2,963.20. However, the very next day, prices dipped slightly, hovering around the $2,940 mark.

Amidst this price surge, US President announced on February 24 that tariffs on imports from Mexico and Canada would be imposed "on time" by March 4, escalating demand for safe-haven investments like goldIt appears that the trade situation is evolving rapidly, reflecting a broader pattern of protectionist policies that are reshaping global markets.

Yet, attributing the spike in gold prices solely to the actions of the US President would be overly simplisticThe reality is far more complex, involving an interplay of geopolitical uncertainties, central bank policies, and economic indicators that point towards potential inflation.

The reasons behind the unexpected strength of gold prices are multifacetedAlthough it was anticipated that gold might face upward pressure, the speed at which it reached new highs caught many analysts off guardThe increase has been unprecedented, with prices hitting new record levels in less than two months of the year.

Why is gold so luminous in the financial world right now? Analysts point out a multitude of drivers propelling gold's ascentThere are undeniable economic pressures within the US, coupled with ongoing uncertainty surrounding trade policies, motivating domestic and international investors to shift their funds into gold as a safeguard against inflation and currency devaluationFor instance, recent data from the World Gold Council indicates a robust net inflow of 34 tons into gold ETFs throughout January alone, highlighting strong investment demand that has primarily underlined price increases.

Additionally, US government trade policy signals potential tariffs on gold and silver imports, creating new arbitrage opportunities

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The price disparity between London spot gold and COMEX futures once widened to an astounding -$58 per ounce, prompting many traders to move inventories from London to New YorkSince December of last year, COMEX gold stockpiles have increased by over 110%, while London’s supplies faced significant declines, creating a critical structural shortage that helped maintain high gold prices.

According to Lu Zhe, chief economist at Dongwu Securities, there are three primary driving factors behind the surge in gold pricesFirst, the demand for safe-haven assets has surged amid escalating trade tensionsThe announcement of tariffs on steel and aluminum imports by the US has introduced a sense of instability into global markets, causing investors to seek refuge in goldConcerns have also emerged regarding the potential for tariffs specifically targeted at gold, further amplifying physical demand.

Secondly, the active purchasing of gold by central banks worldwide has been significantOver the last three years, annual gold purchases by global central banks have consistently exceeded 1,000 tonsIn particular, central banks from emerging markets, including China's People’s Bank, have been stockpiling gold, signaling a broader trend of diversifying reservesChina’s new pilot program encouraging insurance fund investments in gold is projected to infuse an additional ¥200 billion into the market, generating sustained upward pressure on gold prices.

Moreover, the recent weakness in the US dollar and the decline in US Treasury yields have also contributed to the gold price rallyThe dollar index fell to a two-month low, which, combined with reduced real yields on US debt, lowered the opportunity cost of holding gold, further driving its price higher.

On February 24, under the weight of disappointing economic data, the 2-year US Treasury yield sank to its lowest point since December 11 of the previous yearThe benchmark 10-year Treasury yield also dipped to its lowest since mid-December

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Such movements in the financial markets are indicative of growing recession concerns that are feeding into expectations for potential rate cuts by the Federal Reserve.

Looking at the data, by the market close on the 24th, the 2-year Treasury yield had dropped by 1.91 basis points to settle at 4.1725%, the 5-year yield decreased by 2.66 basis points to 4.2352%, and the 10-year yield fell by 2.32 basis points to 4.3984%. Meanwhile, the yield on the 30-year Treasury fell by 1.47 basis points to 4.655%.

Market conditions are shifting, as Lu Zhe highlighted that the recent economic data from the US has largely underperformed expectationsThe Service PMI for February came in at a disappointing 49.7, the lowest since January 2023, while 5-year inflation expectations had surged to 3.5%, marking the highest levels since 1995. This overall picture suggests that, except for some anomalies like January's non-farm payrolls and CPI figures, the economic landscape is revealing signs of weaknessThe initial euphoria surrounding the current administration has begun fading, revealing the uncertainties that loom over consumer confidence and inflation expectations.

As gold prices soar toward the $3,000 mark, investors remain cautiously vigilant regarding potential correctionsRecent trends indicate a shift in market sentiment, with reduced risk appetite spilling over into the equity marketsAn abrupt spike in gold prices to $3,000 per ounce may materialize, yet the extent of increases in COMEX stockpiles has begun to stabilize, while supply tightness in London has also eased—resulting in a narrowing spread between futures and spot prices.

There is considerable uncertainty about how tariffs and other policies will unfold, especially in a climate fraught with changing geopolitical tensions and fluctuating negotiations regarding conflictThese elements suggest that investors should be wary of a potential retreat in physical deliveries, which could trigger temporary selling pressure on gold.

Moreover, tracking US Treasury yields will be essential for understanding trends in gold

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As we look forward, the upcoming US Personal Consumption Expenditures data is expected to reflect a milder picture compared to the CPI readings, potentially resulting in further downward pressure on bond yieldsForward-thinking into the labor market, anticipated government layoffs could impact nonfarm employment figures, while inflation tendencies are likely to exhibit tapering trends as we advance through the first months of the year.

Overall, while gold pricing may face short-term fluctuations, analysts maintain a constructive long-term outlookMarket expert Jim Wyckoff from Kitco Metals expresses that as long as uncertainty pervades global situations, gold is well-positioned to appreciate in value.

The possibility of gold breaching the $3,000 threshold seems increasingly viable, with analysts from UBS asserting that sentiment in the market is currently steeped in bullishness driven by the unpredictable macro environmentThe path ahead appears favorable for gold, with expectations to reach upwards of $3,200 later this year before gradually adjusting to about $3,000 by the end of 2025.

In fact, Goldman Sachs has raised its forecasts for gold prices by year-end 2025, now targeting $3,100 per ounce, reflecting robust ongoing global demand from central banksIf tariff theme anxiety continues to loom, there may even be a trajectory towards $3,300 before the year concludes.

Lu Zhe outlines that Goldman's optimistic outlook for precious metal pricing hinges upon several factors such as rising anti-globalization trends, credit concerns surrounding the US dollar, and the prolonged nature of geopolitical tensionsFurthermore, with 2024 already registering significant price surges, should gold decisively rally beyond the $3,000 mark, it may trigger an influx of technical buying activity.

Looking ahead, the medium to long-term perspective suggests that significant room remains for gold prices to appreciate, bolstered by strong investment demand and central bank purchases that are likely to act as pillars of support.

Royal London Asset Management’s head of asset allocation, Trevor Greetham, states that gold serves as a multifaceted hedge against geopolitical risk, inflation, and currency fluctuations, which have rendered it a compelling investment in the past year

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