Metals Focus: Institutional investors' funds are expected to continue flowing into the gold market in the coming weeks.

The world precious metals consulting company Metals Focus stated that on April 2nd, the US began to impose new retaliatory tariffs, escalating the risk of further trade war between the US and its major trading partners, which will exacerbate concerns about recession. Given that market sentiment has already turned weak, there is a possibility of further decline in global stock markets, especially in the US stock market. In this context, institutional investors' funds are expected to continue to flow into the gold market in the coming weeks in order to seek portfolio diversification. Metals Focus pointed out that the price of gold has been rising significantly since the beginning of the year, with a gain of over 15% so far this year. After breaking through the important psychological level of $3000 per ounce, gold continued to strengthen and reached a historical high of $3050 per ounce after the FOMC (Federal Open Market Committee) meeting. Several factors are driving the rise in gold prices, including market concerns about the escalating trade war between the US and its major trading partners and its impact on the global economy. Changes in market interest rate expectations are also related to this. Finally, geopolitical tensions continue to support the rise in gold prices. Looking at these driving factors in detail, the impact of the economic policies of the Trump administration on global financial market sentiment since November last year has become increasingly significant. After taking office, Trump announced tariffs on major trading partners, and these trading partners also announced retaliatory tariffs on US goods, leading to an increased threat of a prolonged trade war. Initially, the financial markets expected the tariffs to push up inflation and slow down the pace of interest rate cuts by the Federal Reserve, adjusting interest rate expectations accordingly. However, concerns about economic growth quickly gained the upper hand. As an example, the momentum of the US economic growth has slowed in recent months, with the Citigroup US Economic Surprise Index continuously declining since January, entering negative territory after mid-February. The GDP forecast model of the Atlanta Federal Reserve Bank also reflects this economic slowdown trend, with the current forecast indicating a real GDP growth rate of -1.8% in the first quarter of this year. Importantly, concerns about a comprehensive recession in the US economy in recent months have increased, boosting demand for defensive assets such as gold. Turning to inflation, although it remains sticky overall, the inflation rate in the US has not risen significantly in recent months. The easing of inflation pressure, coupled with weak economic data, has led to an increasing expectation in the market for a larger interest rate cut by the Federal Reserve. Federal funds rate futures prices show that the market currently expects a cut of around 25 basis points in 2025, with three cuts by the end of 2025, each by 25 basis points. In this context, the US dollar has significantly weakened, with the US trade-weighted dollar index falling from a high of 110 in January to below 104 in March. In addition to increasing macroeconomic uncertainty, geopolitical tensions remain high so far this year. With the recent ongoing attacks by Israel in the Gaza Strip, tensions in the Middle East have escalated again, providing further support for the rise in gold prices. In the above context, the prices of risk assets have weakened. Especially, the US stock market, which has been rising steadily in recent years, is now under pressure, with the S&P 500 index falling by nearly 10% from its high in February, and the Nasdaq Composite index down 13% from its high in December last year. A recent survey conducted by a US bank shows that investors significantly reduced their exposure to US stocks in March, from an overweight position of 17% to a net underweight position of 23%. In contrast, gold continues to attract inflows of funds. For example, the total holding of gold ETPs (exchange-traded products) increased by 100 tons in February, setting a new record for monthly inflows since March 2022. In addition, central banks in multiple countries continue to steadily increase their holdings of gold, providing further support for the rise in gold prices. After a strong purchase volume in 2024, countries such as China, India, and Poland, which have been consistently buying gold, have further increased their gold reserves so far in 2025. The decline in US policy rates is expected to boost gold investment further. Although the Federal Reserve's latest rate forecast (50 basis point cut in 2025) is more hawkish than current market expectations, the fact that rates are trending lower will support gold prices. With the increase in inflation expectations due to concerns over retaliatory tariffs, the decline in real interest rates is expected to be greater, lowering the opportunity cost of holding gold. Furthermore, the rising US government debt due to high fiscal deficits may also lead to more funds flowing into gold for safety. Additionally, the unfavorable economic conditions in Europe and China are also prompting funds from these countries to flow into gold. Metals Focus believes that the attractiveness of gold investment will diminish in the second half of 2025. The main assumption behind this judgment is that by then, financial markets will have a clearer understanding of tariff policies. In the baseline prediction scenario, it is expected that the US economy will not fall into recession this year. Once the pace of funds flowing into the gold market slows down, gold prices will face downward pressure. Nevertheless, given the rapid changes in the policies of the Trump administration, financial market volatility is expected to remain high. Finally, it is expected that official sectors around the world will continue to buy gold strongly in the foreseeable future. With the combination of these factors, gold prices should remain at high levels throughout 2025.