The shift in the U.S. policy has promoted a favourable environment for gold prices. This precious metal increased in price and closed the first quarter of the year in record-high positions. Traditionally considered a safe-haven asset, it hit over $3,057 on the 20th of March.
Will the uptrend persist, or is this a temporary deviation? What drives this movement? This article will explore the forces behind gold’s jump and what lies ahead for the precious metal.
What pushes the prices?
The first and foremost factor explaining gold’s strong rise is the market’s volatility. The greater the uncertainty, the higher the market volatility, and the lower the predictability, the stronger gold becomes. Gold is a unique asset that remains unaffected by many decisions. Unlike stocks or bonds, its value is not tied to yields or market multiples. This is the core of gold’s appeal. When investors purchase it, they invest in something that remains fundamentally simple and enduring and can save them from a fall.
This reason also stems from Donald Trump’s political rhetoric. Overall, his presidency is making waves in financial markets and creating a great level of uncertainty. The issue is not necessarily the content of Trump’s statements but their consequences—each one boosts volatility. As a result, institutional investors seek stability, and gold remains their preferred safe-haven asset.
Another signal from the USA that has an effect on gold’s price is claims about the upcoming recession. Trump’s team is already openly discussing the recession, which is gradually becoming an objective reality. Considering that even today, gold is showing steady growth, with the development of a recession, its position may strengthen even more.
What about the economic conditions?
The recession in the USA indeed may take place very shortly. However, it is not the main factor to worry about. Although current macroeconomic data does not seem bright, these are not the most important factors in gold’s price movements. What truly matters is how central banks and investors interpret the data. In recent months, there has been a disconnect between the statistics and the reactions to them, as the economy has become increasingly unpredictable. As a result, it is less about tracking individual indicators and more about understanding the broader trend in how people perceive the current economic situation.
Last but not least, the reason for gold’s steady growth is the monetary policy adopted by most central banks. Despite efforts to maintain a conservative stance—especially the Federal Reserve’s reluctance—it is clear that the cycle of interest rate cuts has already begun. Although the pace may not be as rapid as we anticipate, the shift is inevitable and irreversible. Under the condition that the rates will be lowered sooner or later, gold is poised for continued growth, regardless of external influences.
Can gold provide high returns to investors?
Gold should not be seen as a way to make quick profits, but rather as a tool to preserve and protect capital in the long-term. It is an asset that primarily serves to keep the value of money over time, especially in conditions of economic instability and inflation. Unlike stocks or bonds, which can generate income in the form of dividends or interest, gold does not generate profits directly. However, its value remains or even increases when other assets lose their value due to economic or political risks.
Considering this, gold becomes an ideal investment for investors focused on building a steady portfolio. It is a conservative asset, and there is no need for being a skilled trader to benefit from it. However, there may be times when it seems like gold is stagnant, which can create the false impression that it is time to sell and move into higher-yielding assets. This is often a mistake, as investing in gold requires patience and a longer perspective.
Will the growth trend continue?
When speaking of the future of gold prices, one thing is for sure—the current hike is only the beginning. The price of the yellow metal will only continue to grow and hit new records. What is happening now is not a temporary phenomenon but a new reality. The $3,000 level, which previously served as a psychological barrier, has already become a solid support. Now that it has happened, there will be practically no reason for a pullback. Of course, corrections and high volatility are possible, but in general, the market is entering a new phase that we will have to live with for a long time.
Written by Julia Khandoshko, CEO at the European broker Mind Money.
