Introduction to the Global Economy and Gold
The global economy is facing a new era of trade tensions due to the United States’ tariff policies. This has created a lot of uncertainty, making gold a more appealing safe-haven asset. The Federal Reserve, which is responsible for controlling the US economy, has its hands tied due to inflation risks and the strength of the dollar. As a result, investors need to be careful when navigating this complex landscape.
Trade Wars and Their Impact on Gold
The US has increased its tariffs on imports from other countries, including Canada and China. This has led to fears of a full-blown trade war, causing investors to move their money from riskier assets to safer ones like gold. The price of gold has risen to $3,360 per ounce, a 1.2% increase from the previous week. The trade war has resulted in a loss of $21 billion in annual exports for Canada and higher input costs for industries that rely on copper.
The Federal Reserve’s Dilemma
The Federal Reserve is in a difficult position. On one hand, it wants to support economic growth, but on the other hand, it needs to control inflation. The Fed’s June meeting minutes showed that it is concerned about the impact of tariffs on inflation. This uncertainty is good for gold, as it makes investors more likely to buy the metal as a hedge against inflation.
The Relationship Between Gold and the Dollar
The price of gold is closely tied to the value of the dollar. When the dollar is strong, gold becomes more expensive for non-US buyers, which can lead to a decrease in demand. The US Dollar Index (DXY) has risen 3% since June, which could put pressure on gold prices. However, if the trade disputes are resolved, the dollar could weaken, and gold prices could rise.
Central Banks and Gold
Central banks have been buying gold at a record pace, with 244 tonnes added in the first quarter of 2025. Poland and China have been leading the charge, with Poland increasing its gold reserves to 21% of its foreign holdings. This institutional demand provides a floor for gold prices, even during times of uncertainty.
Technical Outlook for Gold
The technical picture for gold is bullish, with the $3,372 Fibonacci resistance level broken. The next key level to watch is $3,400, which could be a psychological barrier. If gold breaks above this level, it could lead to a further rally. However, if it falls below $3,325, the uptrend could stall.
Investment Strategy
Investors can capitalize on gold’s resurgence by accumulating gold ETFs like GLD or IAU at current levels, targeting $3,400. Speculative investors can look at mining stocks like GDX, but should wait for a confirmed breakout above $34/oz. To manage risk, investors can pair gold allocations with short positions in the dollar via UUP or FXE and set a stop-loss below $3,272.
Key Risks to Monitor
There are several risks that investors need to monitor, including a potential trade deal between the US and China, which could reverse the current risk-off sentiment and weaken gold. A stronger dollar could also put pressure on gold prices. Additionally, central banks may pause their gold purchases due to geopolitical shifts, which could reduce structural demand.
Conclusion
Gold’s resurgence is not a temporary phenomenon, but rather a result of the current economic uncertainty. With trade tensions intensifying, central banks buying, and the Fed’s policy path uncertain, gold remains a critical hedge against systemic risk. Investors should treat gold as a "stress-test asset" and balance their allocations with caution for dollar volatility. The $3,400 level is the next key milestone, and breaking it could lead to a further rally in gold prices.
