Shafaq News/ As U.S. PresidentDonald Trump ratcheted up his tariff war on the world, gold kept climbing inlockstep to reach a succession of record highs.
The precious metal reached a freshpeak of $3,245.28 an ounce on April 11 and has climbed 28% since hitting a lowof $2,536.71 on November 14, shortly after Trump's victory that saw him returnto the White House to start his second term in January.
In some ways gold is functioningexactly as it should.
It is offering investors a safehaven from the chaos that has enveloped many financial markets since Trump'sill-fated "Liberation Day" tariff announcements on April 2.
The imposition of massive tariffs onmost U.S. trading partners, with the false claim they were reciprocal, sentequities, bonds and some commodities into reverse.
Trump's subsequent 90-day partialclimb down of the tariffs to a base of 10% on every country, apart from the now145% imposed on China, has largely failed to soothe nerves and provide thestability that financial markets generally crave.
The uncertainty has also led to someserious questions being asked about the role of U.S. Treasuries as the ultimatesafe haven asset, with investors questioning whether this role is beingundermined by Trump's tariffs.
Benchmark U.S. 10-year Treasuryyields posted their biggest weekly increase in more than two decades last week,ending at 4.478% on April 11, up 8.6 basis points.
The nerves over the role of the U.S.dollar as the global reserve currency and U.S. Treasuries as the safest havenare no doubt positive for gold.
GOLD HOSTAGE
The problem for gold is that it isas much of a hostage to Trump's erratic and inconsistent trade and economicpolicies as any other asset.
If Trump continues his trade waragainst China, and increases tariffs from the 10% base on other countries afterhis 90-day pause, then it's likely that gold will continue to rally.
But if a compromise with Beijing isworked out that allows both parties to save face, and other countries reachdeals with Trump that largely preserve global trade, then the case for goldlooks less secure.
The dilemma is that working out whatis the likely trajectory of Trump's tariff war is at best a guessing game.
Perhaps the safest assumption isthat when the dust settles the United States is still likely to have thehighest average tariffs on imports since the 1930s.
This is likely to crimp economicgrowth and accelerate inflation, but perhaps more in the United States thanaround the globe.
In this case, does gold continue torally strongly as several investment banks are now predicting, an example beingGoldman Sachs lifting its 2025 target to $3,700 an ounce on April 11.
Or does the fear trade subside andgold's more traditional drivers of central bank buying and physical demand inChina and India come back into play?
CHINA PREMIUM
Certainly a move away from U.S.Treasuries is likely to drive gold purchases, especially in China, the world'stop gold buyer.
Chinese consumer demand may alsohold up given uncertainty over the outlook for equities, and this dynamic isreflected in the rising premium for spot purchases , which rose to $39 an ounceon April 11, the highest since December 2016 and up from the discount of $16 inthe week after Trump's November election win.
But unlike China, high gold pricesare likely to curb consumer demand in India, the second-biggest buyer of theprecious metal.
Already there are some signs ofconsumer stress in India, with the discount for buying gold dropping to aneight-and-a-half year low of $41 an ounce on March 21.
It has recovered since then to adiscount of $11 an ounce on April 11, but even at this level it is still wellbelow the premium of $16 from Nov. 15, shortly after Trump's victory.
If overall gold demand is viewed asa three-legged stool of investor demand, central bank buying, and China andIndia consumer purchases, currently all three legs are being supported.
With the exception of India demand,all legs are also being held by Trump's policies, meaning that while gold isfunctioning as a safe haven, it's likely to be subject to the same volatilityas other assets.
The views expressed here are thoseof the author, a columnist for Reuters.
(REUTERS)