- Tensions between Russia and Ukraine have led to a stall in peace talks.
- Market participants are grappling with uncertainty regarding Trump’s tariff policies.
- Forecasts show that central bank demand will support gold prices this year.
Gold prices surged on Tuesday as investors sought safety amid stalled Russia-Ukraine peace talks. At the same time, uncertainty regarding Trump’s tariff policies and their impact on the global economy drove safe-haven inflows to the yellow metal.
Reports that Trump was ready to end the war between Russia and Ukraine weakened gold prices as it increased risk appetite. The US President went as far as calling the two presidents and confirming that they both want peace. As a result, the three parties were set to meet in Saudi Arabia to discuss a peace deal.
However, on Tuesday, it became clear that there were still tensions between the two countries that might make the peace-seeking process long. The Ukrainian president is already suspicious of a deal between the US and Russia. As a result, he postponed his journey to Saudi Arabia.
Meanwhile, Russia is trying to use this opportunity to gain from the peace deal by demanding more than Ukraine is ready to offer. The renewed tensions dampened hopes for a near-term ceasefire, boosting gold prices. Gold is considered the safest bet in times of geopolitical tensions.
Spot gold (Source: Bloomberg)
At the same time, market participants are grappling with uncertainty regarding Trump’s tariff policies. The president has taken an aggressive stance, imposing tariffs on specific goods and countries. Although some tariffs have been paused or delayed, Trump is ready to implement all of them, which could lead to a global trade war. Such an outcome would hurt the global economy and risk appetite, pushing investors to safe-haven assets like gold.
Tariffs could increase US inflation, leading the Fed to maintain high interest rates. Although gold is a hedge against inflation, it cannot compete with yielding assets. Therefore, high US rates would hurt demand for bullion.
Last week, inflation figures from the US revealed hotter-than-expected price pressure, slashing Fed rate cut expectations. However, a separate report showed an unexpected decline in retail sales, which revived rate-cut bets. Market participants now expect the FOMC policy meeting minutes to provide more clues on future monetary policy.
Elsewhere, forecasts show that central bank demand will support gold prices this year.
