Gold hits record high as Trump tariff threats drive safe haven demand

Investors await key US inflation report for further direction

A gold item at a jewellers in India's capital New Delhi. Bullion prices were set for their best month since March 2024. Reuters

Gold prices hit a record high on Friday as investors flocked to the safe-haven asset due to heightened threats of US tariffs and await a key US inflation report due later in the day for further direction, once again bringing the key $3,000 threshold on to investors’ radar.

Spot gold steadied at $2,794.8 per ounce at 9.48am UAE time on Friday, and has gained more than 6 per cent this month. Earlier in the session, prices hit an all-time high of $2,799.71.

Bullion prices were set for their best month since March 2024. Spot gold started 2025 with fresh vigour after logging its strongest annual performance since 2010 last year.

US gold futures rose 0.2 per cent to $2,826.90 on Friday. They have been trading at a premium to the spot price for several months and have widened the price spread again.

“The recent rally in gold prices is backed by a swift move to safety due to US President Donald Trump's tariff threats, increasing geopolitical tensions, rising US government debt and the fear of a potential tech rout that could lead to a global risk sell-off,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

“It underscores mounting concerns over political and geopolitical instability, as well as stretched valuations, and is amplified by expectations around Fed policy, emerging markets central bank gold buying and shifting market positioning.”

Gold, which is on track for its fifth consecutive weekly gain, hit multiple record peaks last year, bolstered by the US Federal Reserve's rate-cutting cycle, safe-haven demand and robust central bank buying.

The surge on Friday came after Mr Trump said on Thursday that he would follow through on imposing a 25 per cent tariff on imports from Mexico and Canada. He also threatened China with tariffs, without specifying a level.

Mr Trump’s tariff threats have spurred fears of trade wars that could sap economic growth. There are also worries that his pledges to cut taxes and overhaul immigration may erode US finances and reignite inflation.

Traders are focused on the Fed’s favoured inflation gauge, the US personal consumption expenditures index for December, due at 5.30pm UAE time on Friday. It is expected to show a small acceleration in price hikes, according to the median forecast of economists surveyed by Bloomberg.

This week, the Fed kept interest rates unchanged for a range of 4.25 per cent to 4.50 per cent, in line with market expectations. In the three meetings before this, interest rates were cut by a total of 100 basis points. At the current moment, Fed fund futures suggest the probability of about two interest rate cuts by the end of 2025, down from about the four cuts expected in 2024.

Federal Reserve chairman Jerome Powell suggested that officials were not in a rush to lower interest rates, given a robust US economy along with solid labour market conditions. He said the US central bank was in a “wait-and-see” mode with regard to the potential impact of the new administration’s policies.

Gold is considered a safe investment during geopolitical turmoil and thrives in a low interest rate environment.

As to purchases by central banks, the People's Bank of China has been a key driver of gold demand, as it kept on adding bullion to its reserves over the past year despite price growth. Continued purchases by China's central bank could provide further support to gold prices in the coming months.