Gold’s correction last week has proved to be short-lived as a sharp drop in U.S. equities drives renewed safe-haven demand for the precious metal.
The S&P 500’s selloff started Monday afternoon after President Donald Trump said that his 25% tariffs on Canadian and Mexican imports would go into effect at midnight Tuesday. At the same time, Trump also extended his tariffs on Chinese goods, pushing the U.S. into a global trade war.
The broad equity index lost 104 points Monday and continued its slide Tuesday. The S&P 500 has dropped below critical support at 5800 points. As of 10:05 am ET, the index was trading at 5763 points, down 86 points or nearly 1.5%. Meanwhile, gold prices have pushed solidly back above $2,900 an ounce; April gold futures were traded at $2,919.50 an ounce, up 0.63% on the day.
The tariff fears have completely wiped out the equity market’s post-election gains. At the same time, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that gold has room to run higher following its shallow correction. He said that the $3,000 target is back in play.
“The outlook for gold remains supportive, particularly given the limited depth of the latest correction, which signals strong demand despite selling pressure from technically focused traders. In addition to diversification and safe-haven demand, gold will likely continue to benefit from central bank buying as fiscal debt concerns persist,” Hansen said in his latest precious metals note.
Along with geopolitical uncertainty supporting gold’s safe-haven allure, Hansen said the precious metal is benefiting from growing weakness in the greenback as the U.S. dollar index tests critical support at 106 points.
At the same time, Hansen noted that slowing economic activity is raising expectations that the Federal Reserve will be forced to cut interest rates this year, even if inflation remains elevated.
“While we are acutely aware nothing ever goes in a straight line—perhaps apart from Trump’s crypto pump and dump—we maintain our recently raised target of $3,300,” Hansen said.
As to how much potential gold has, Hansen noted that investment demand for gold-backed exchange-traded products has seen a significant jump in the last few weeks even as volatile speculative interest remains bearish.
“While demand for bullion-backed ETFs has risen in the past month, total holdings at 85.8 million ounces remain well below the recent 2022 peak of 107 million,” he said.
Source: Neils Christensen Kitco
