Gold eases off record levels, but market optimism remains strong

Gold prices retreated from fresh record highs on Thursday, but experts see downside limited in the yellow metal. 

The most-active gold contract on COMEX climbed to nearly $3,200 per ounce earlier in the day. However, prices have since then pulled back. 

At the time of writing, the June gold contract on COMEX was at $3,149.14 per ounce, down 0.5% from the previous close. 

However, experts believe that the threat of US tariffs are expected to continue supporting safe-haven demand for the precious metal in the coming sessions. 

“Gold hit a record high following the announcement of reciprocal tariffs, with spot prices nearing US$3,170/oz at one stage,” ING Group’s analyst said in a note. 

ING analysts added:

These tariffs will raise global growth concerns. There will also be uncertainty over how trading partners retaliate, which is likely to continue to support gold.

Trump’s tariffs 

US President Donald Trump revealed a new tariff plan on Wednesday, which includes a 10% base tariff on all US imports and additional tariffs on numerous countries, some of which are major trading partners. 

This escalation of the trade war has caused concern in global markets.

The Trump administration confirmed that the 25% tariffs on imported cars and trucks will begin on April 3 as planned.

The tariffs on imported auto parts will go into effect on May 3rd.

“The developments raise the risk of a widening trade war, which could upset global free trade and impact negatively on the world economy,” Haresh Menghani, editor at FXstreet, said in a report.

“This, in turn, boosted demand for traditional safe-haven assets.”

The fresh record high for the gold price on Thursday was further fueled by heavy US dollar selling.

Fed may be forced to cut rates

Investor sentiment has shifted towards apprehension regarding the potential ramifications of President Trump’s protectionist trade policies. 

There is growing concern that these policies could stifle economic growth and ultimately lead the US economy into a recession. 

This has led to a significant adjustment in market expectations, with investors now pricing in a 70% probability that the Federal Reserve (Fed) will respond by lowering borrowing costs as early as June.

Furthermore, the prevailing risk-averse sentiment in the market has triggered a flight to safety, driving up demand for US Treasury bonds. 

This surge in demand has pushed yields on Treasury bonds lower across all maturities. 

The decline in Treasury yields has, in turn, exerted downward pressure on the dollar, as lower yields make US assets less attractive to foreign investors.

Silver may not outperform gold

According to a Kitco report, Bank of America remains bullish on silver, but it does not expect the metal to outperform gold. 

The bank expects silver prices on COMEX to average $35 per ounce in 2025. 

Silver prices have struggled to maintain gains above $34 an ounce, whereas gold prices have surged past $3,100 an ounce.

At the time of writing, spot silver was down 3.5% at $33.44 per ounce. 

The gold/silver ratio, currently at a two-year high of over 92 points, shows that 92 ounces of silver are now needed to match the value of one ounce of gold.

This is significantly higher than the historical average of approximately 60 points.

Although there is potential for silver prices to increase, analysts at Bank of America predict that the gold-silver ratio will stay high.

Bank of America analysts said:

We remain bullish (on) gold but would avoid positioning for mean-reversion in gold-silver spreads as we do not find co-integration.

Bank of America also noted that in a typical precious metal bull market, silver tends to outperform gold. However, the rally in gold prices has been fuelled by accumulation by central banks, the bank said. 

For silver, storage is difficult, and hence, central banks have been net sellers of the metal. 

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