Gold took a breather on Tuesday after rapid 10% run year-to-date. But Wall Street analysts see more upside for the precious metal given recent tariff announcements and the threat of an escalating trade war.
On Tuesday, gold futures (GC=F) pulled back after jumping to an all-time high past $2,960 over the past 24 hours in reaction to President Donald Trump's tariff plan against steel and aluminum imports.
"We continue to see gold as an effective portfolio hedge and diversifier," Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, said in a note Tuesday.
Macelli added: "We recently raised our gold forecast to USD 3,000/oz for 2025 as we believe the metal will continue to be supported amid fragile risk sentiment and strong demand."
On Monday the President signed an executive order raising duties on steel and aluminum imports to 25% starting on March 12. The European Union has vowed to the react with its own countermeasures, fueling concerns of a trade war.
Meanwhile this week, Trump is expected to unveil a retaliatory tariff plan against countries which impose levies on US goods.
“In addition to tariff uncertainty and geopolitical tensions, further rate reductions from the Federal Reserve later this year should also boost the investment case for gold," UBS's Marcelli said.
Investors will look towards Wednesday’s monthly Consumer Price Index (CPI) print for clues on how the Federal Reserve will proceed with rate cuts after policy makers paused reductions during their January meeting. Investors anticipate the Fed won’t cut again until the second quarter of this year.
Given gold's run this year, analysts warn of an overextension in the short run if tariff threats don't materialize.
"Commodities like gold can act as a diversifier, but the recent rally creates risk of setbacks in case tariff uncertainty fades," Goldman Sachs analysts wrote on Monday.
Central bank buying and ETF inflows has fueled gold's meteoric rise over the past year.
In 2024 gold demand surged to new records as central banks accelerated their purchases in the fourth quarter of last year, according to a recent World Gold Council report.
Meanwhile, China recently approved 10 insurance firms to buy gold as part of a pilot program, further fueling the potential for inflows into the market.
“China’s green light for insurers will supercharge demand,” said Nigel Green, CEO of global financial advisory deVere Group.
Ines Ferre is a senior business reporter for chof360 Finance. Follow her on X at @ines_ferre.
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