Gold hits record high amid strong haven demand
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
A weaker USD helped boost investor appetite and push most sectors higher. Nevertheless, the threat of US tariffs continues to hang over the market.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Market Commentary
Gold surged to a new record high as a weaker USD and ongoing concerns of Trump’s tariffs increased investor demand. The USD fell after the ECB cut interest rates by 25bp and the latest economic data showed inflation adjusted gross domestic product in the US increased at an annualised rate of 2.3% in Q4. Trump’s tariffs are likely to lead to measurably higher inflation, a concern the broader market continues to hold. This was borne out in trade data released yesterday. Swiss exports of gold to the US surged to the highest level since Russia’s invasion of Ukraine, in a sign that investors were keen to protect themselves from the impact of Trump’s economic policies. Switzerland shipped 64.2t of gold to the US in December, the most since March 2022. That was 11 times more than it shipped in the previous month. Swiss exports to the UK jumped more than 13-fold to 14t in the December from the previous month.
The uncertain economic outlook continues to weigh on the base metal markets. Copper managed to edge higher, with the weaker USD helping improve investor appetite. However, activity was subdued with China still out for the Lunar New Year holiday. Proposed US tariffs on copper, aluminium and steel imports are hanging over the market. This has seen copper prices in New York push above LME. Traders face disruptions in the aluminium market, with reports suggest the European Union preparing a proposal to gradually ban imports of the lightweight metal from Russia.
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Crude oil prices fluctuated as investors contemplate the likelihood of US tariffs alongside a flurry of executive orders and policy announcements. As expected, the energy sector was one of the new administration’s main focuses. Trump’s desire to increase America’s dominance in the energy sector is likely to fall short of his aspirations. Opening up federal lands for drilling will be welcomed by the oil industry, but financial considerations are likely to remain the key driver of oil production, particularly in the oil shale industry. Moreover, the foreign policies of the new administration could increase the risk of supply disruptions. Sanctions on Russia, stopping purchases of Venezuelan oil and maximum pressure on Iran will increase the geopolitical risk premium on oil. This could be compounded by the refilling of the strategic petroleum reserve, adding to oil demand. Overall, most measures announced so far were expected. In totality, we see them as adding upward pressure on energy prices this year.
European gas prices surged to a 15-month high amid concerns about rapidly declining gas storage levels. This has seen countries working to ensure refills, with Germany proposing subsidies and Italy preparing an early start to seasonal storage. EU members are required to have storage levels at 90% full by November. However, this year they will face stiff competition from other consumers amid tightness in the global LNG market. Supply side disruptions could also make the job more difficult. Nigeria said its LNG exports have taken a hit after vandalism damaged pipelines. This comes as Malaysia’s exports are under threat from massive floods in the country.?
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Chart of the Day
US trade policy uncertainty has surge higher Trump's first weeks back in the White House. These levels are now greater than during his first presidential term. This has seen haven-driven investor demand for gold rise strongly. This is likely to continue pushing gold prices higher in the short term.?