Gold topped lifetime highs, after a retreat by global investors from US assets, especially from the US dollar. The greenback fell to a three year low after US President Donald Trump put pressure on the US Federal Reserve for an immediate rate cut.
The US President criticized the Fed Chair, Jerome Powell, sparking concerns about the central bank’s independence and putting more pressure on the greenback, sending it to a three-year low.
Correction in US assets after Trump sworn in as President
As the US tariffs and trade policies have roiled markets and eroded the trust in dollar assets, the US stock market has shed around 11 percent, and the US dollar has lost more than 9 percent since January this year.
The tariff standoff between the Trump administration and various countries appears to be dragging down the dollar, causing a sharp fall in US stock and bond markets.
The demand for the US dollar had been rising, and it outperformed the rest of the world in the past few years. Global geopolitical uncertainties propelled investors to find safety in the US dollar, which is often considered as a global reserve currency.
However, following Trump’s threat to the US Central Bank Chief, the dollar index slid to a low of 97.92, the lowest level since March 2022. The currency fell to a decade low against the Swiss Franc, and the Euro strengthened to three-year highs. The Indian Rupee also gained, recuperating from its all-time low of Rs.87.99 to the Rs.85 per dollar level in April.
Investors find safety in gold amid trade war tensions
Gold has gained over 30 percent so far this year in both domestic and overseas markets as Trump’s sweeping tariffs and uncertainty over his trade policies have eroded trust in the dollar assets, driving demand for traditional safe haven commodities like gold.
The US has imposed a baseline tariff of 10 percent on all US imports and higher tariffs on specific countries. China, Vietnam, Japan, India, Korea, and the European Union are facing additional tariffs, primarily centered around addressing trade imbalances, protecting domestic industries, and responding to perceived unfair trade practices.
China, the world’s second largest economy, reacted to the US President’s sweeping tariffs by announcing additional retaliatory tariffs on all goods produced in the US. This prompted the US to increase tariffs once again, making the cumulative tariffs on Chinese products increase to 245 percent. However, on 9th April, Trump paused his massive so-called reciprocal tariffs on other countries but not for China.
The full-blown trade war after China’s tit-for-tat tariffs on all American products is raising worries of a global recession, which has driven the demand for gold, which is considered a safe asset during global economic distress.
Increased demand for Gold ETFs and from various central banks
Flows into gold-backed exchange traded funds and central bank buying have also supported the upswing of gold so far this year.
Inflows into gold ETFs have been substantial, with global gold ETFs experiencing inflows of 13.8 tonnes ($1 billion) in January, following two months of outflows. Specifically, in February 2025, gold ETFs saw inflows of Rs. 1,979.84 crore, a 98.54% increase year-on-year. Inflows have contributed to a significant increase in the total assets under management (AUM) for gold ETFs, reaching US$345 billion by the end of March 2025.
Central bank gold purchases remains robust in 2025
According to the World Gold Council, central banks across the globe continued their robust gold buying trend in 2025, following three consecutive years of purchases exceeding 1,000 tonnes each year. In 2024, they acquired 1,045 tonnes of gold, with a significant surge in Q4, adding 333 tonnes. In early 2025, the National Bank of Poland and China led the net gold purchases, further bolstering their reserves.
Gold has been bullish since 2019
Gold has been in bullish territory for the last six years, gaining more than 150 percent. At the same time, price performance in the past twelve months was exceptional, reaping more than 60 percent, coming close to testing the psychological level of rupees one lakh per ten grams in the domestic market. This was due to increased demand amid rising geopolitical uncertainties and concerns over the global growth outlook.
Looking ahead, as the trade tensions have roiled markets and eroded trust in US assets, gold continues to be the first preference as a reserve asset, further boosting its demand. Increased ETF and central bank demand will also aid the commodity in the short run. However, easing trade tensions and a recovery in the US dollar are likely to put downward pressure on gold but it is unlikely to cause a major liquidation.
