[SINGAPORE] Despite earlier expectations of US President Donald Trump’s reciprocal tariffs, investors were caught off guard by the scale and rationale of his latest move, sparking a rush to gold as equities sank.
In Asian trading on Thursday (Apr 3), spot gold surged to a fresh high of US$3,167.71 per ounce, while June gold futures peaked at US$3,198.40. Prices later pared gains, with spot gold hovering around US$3,126/oz by 4.49pm – still up more than 19 per cent so far this year.
The slight pullback from the new record high was led by investors liquidating gold positions to meet margin calls triggered by equity losses although the long-term fundamentals for gold remain strong, said currency strategist of Bank of Singapore Sim Moh Siong.
Marex’s senior commodity analyst Edward Meir said in a note that markets were “stunned by the magnitude of the tariffs”, as well as “the methodology used to vastly inflate the final numbers”, which calculated tariffs “by incorporating a host of non-tariff variables that are hard to quantify”, instead of using expected reciprocal rates based on average tariffs.
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Meir sees continued volatility given the surprise. “For now, this (market stabilisation) is unlikely to happen now as the scale of the tariffs are so onerous that it will leave America’s trading partners with little choice but to retaliate.”
The full impact of the tariff measures is still unfolding while investors turn to gold, a traditional safe haven asset that performs well during periods of uncertainty, noted Fan Shaokai, head of Asia-Pacific (ex-China) and global head of central banks at World Gold Council.
“Although recession fears have not fully materialised, uncertainty remains, given the unclear scope and duration of Trump’s tariffs and concerns over their long-term effects on global trade, economic growth and consumer spending,” said Fan.
Silver drops
Silver, on the other hand, was weighed down by tariff news given it heavy exposure to industrial demand.
“The silver market is more fearful about recession risks… if global economy slows down more than expected, this could be negative for industrial demand,” said Bank of Singapore’s Sim, adding that gold market, in comparison, is driven by investment demand and central bank purchases.
As of 4.39pm on Thursday, spot silver prices were trading down 2.9 per cent to US$33.08 per ounce, though about 14.5 per cent higher year to date.
Sim noted that the historical case of silver moving along with gold is not likely to play out in the current environment given their fundamentally different price drivers.
Bank of Singapore is, however, still bullish on silver’s price growth, targeting the precious metal to hit US$37 per ounce in a year’s time frame.
Gold price rally is not over yet
Right before Trump’s tariff announcement, both BMI and State Street Global Advisors raised their gold price forecasts, in light of the yellow metal’s sustaining record-breaking rally.
“Gold remains boosted by escalating trade uncertainties, heightened geopolitical tensions, a weaker US dollar, increasing central bank purchases, and rising risks of recession,” said BMI’s team in a note published on Tuesday.
Bullish on gold’s further room for growth, the Fitch Solutions firm revised its annual average gold price forecast for 2025 to US$3,100 per ounce with further upside, from the previous US$2,500 per ounce.
The team expects gold prices to range between US$3,000 and US$3,400 per ounce over the second and third quarters of 2025.
“Gold will once again be an outperformer within the wider metals complex, a scenario that would be put into limbo only if the US Fed proceeds to raise interest rates instead,” said BMI.
In a note published on Wednesday, State Street Global Advisors’ gold team raised its base-case gold outlook to US$2,800 to US$3,100 per ounce for the year, up by US$200 per ounce from its previous forecast.
The forecast revision came amid gold’s current price rally and robust exchange-traded fund (ETF) flows in the first quarter. Global gold ETF holdings increased in March for the third consecutive month by 2.7 per cent, the most since three years ago, noted the team.
The base-case scenario, which holds the highest – 50 per cent – probability, comprises US policy uncertainty, fewer Federal Reserve rate cuts, a US dollar trough and moderating physical demand at high price levels. This is on top of some meaningful profit-taking and liquidation in the second or third quarter this year, said the asset manager.
The team is also bullish on a gold price rally over the next six to nine months, with a potential to break out into the US$3,300 to US$3,400 per ounce range.
“But the path is unlikely to be linear and gold investors will likely grapple with a period of consolidation and/or a 5 to 7 per cent drawdown. This is common during bull cycles,” it added.
Under a bull case where markets experience more equity drawdowns, US recession fears, consistent growth in ETF flows, greater geopolitical uncertainty and Fed rate cuts, as well as China retail demand’s rebound, the team boosted its price forecast for 2025 to range between US$3,100 and US$3,400 per ounce.
The probability of the bull case happening was raised to 40 per cent from 30 per cent, noted the team.
Monitor China retail demand
State Street Global Advisors’ gold team noted that China retail gold imports were much weaker than expected in January to February, which usually sees demand supported by the Chinese New Year period.
“This may suggest fatigue at record price levels,” said the team.
China retail gross purchases for gold stood at 16.5 tonnes in January, the weakest seasonal print in four years and the weakest monthly reading outright since February 2021.
February 2025 saw gold imports rebound to 76.3 tonnes, which was still down 45 per cent year on year.
“While we anticipated a downtick in 2025 China gold trade flows versus the feverish and record pace in the first half of 2024, the sizeable drop in volumes is worth noting… The key question for gold markets is whether January to February was a blip in trend or foreshadowing a downturn in China retail gold consumption.”
The team added that it is still too early to tell, especially after the Chinese government’s pilot programme that allows 10 insurers to invest up to 1 per cent of their assets in gold.
The team highlighted that retail China gold demand recovery post-pandemic was a primary reason prices for the yellow metal held and rose in 2023 to 2024, despite a hawkish Fed and a massive rise in real US yields across the curve.
“So the evolution of non-monetary China gold demand is critical. A rebound in Q2 imports would enhance our bull case outlook to US$3,400 per ounce over the next six to nine months.”
