In a move that has sent shockwaves through global markets, on February 10th, the United States signed an executive order imposing a 25% tariff on all imported steel and aluminumThis new policy is set to take effect on March 4th and abolishes previous exemptions and quotas for certain trading partnersFurthermore, U.S. officials have hinted at potential tariffs on automobiles, chips, and pharmaceuticals, raising concerns about escalating trade tensions between the U.S. and its economic allies.

The ramifications of these tariffs are significant, as highlighted in a statement from the European Commission following the U.S. announcementThe EU condemned the tariffs as unjust and threatened retaliatory measures to protect European businesses, workers, and consumers from what they perceive as unfair trade practices by the U.SThis escalating conflict indicates a possible trade war, further destabilizing the already fragile global trading environment.

The immediate impact of the tariffs was felt in the commodities market, particularly goldAs fears of trade conflicts and inflation grew, gold prices surged dramatically, hitting record highsOn February 10th, spot gold prices jumped by 1.6%, surpassing $2900 per ounce for the first timeFollowing this momentum, gold continued to climb, reaching unprecedented levels with spot prices exceeding $2940 and futures crossing $2960 by February 11th.

Despite the recent spikes, the gold price surge is not without its risksOn February 11th, the upward momentum showed signs of cooling, with prices retreating from their peak as they approached the $3000 mark, facing resistance amidst an uncertain economic landscape.

The tariffs have played a pivotal role in the surge of gold pricesAs traders scramble to ship gold to the U.S. to avoid potential tariffs and capitalize on arbitrage opportunities, the volume of gold stored in London decreased dramaticallyIn January alone, the London gold vaults saw a staggering reduction of 4.9 million ounces, marking the most significant monthly decline on record since 2016. Data from the London Bullion Market Association revealed that approximately $14 billion worth of gold exited the market, resulting in a 1.7% drop in total inventory compared to December of the previous year.

Additionally, on February 11th, futures prices for U.S. gold remained nearly $30 higher than spot prices in London

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The vaults under London contain approximately $800 billion worth of gold, and concerns over possible tariffs have caused U.S. gold future prices to soar, resulting in substantial price disparities between the U.S. and London markets, creating lucrative arbitrage opportunities for traders willing to transport gold across the Atlantic.

Industry experts like Jerry Chen, a senior analyst at Gain Capital, attribute the record-breaking gold prices to a combination of risk aversion and arbitrage tradingThe strong bullish trends, fueled by a series of tariff announcements from the U.S., have pushed prices beyond the $2900 thresholdAccording to Chen, the ongoing momentum and uncertainty surrounding tariffs suggest that the $3000 mark may soon be within reach.

From a financial perspective, data from the World Gold Council indicates a significant uptick in investments in physical gold ETFs at the start of 2025, with a net inflow of $3 billion, primarily driven by Europe, which accounted for $3.4 billion of that total—the largest monthly inflow since March 2022. Meanwhile, North America experienced a decline for two consecutive months, with outflows totaling $499 millionBy the end of January, total assets under management in global gold ETFs rose to $294 billion, setting a new record with an increase of 34 tonnes.

In January, the average daily trading volume of gold in global markets reached an impressive $264 billion, reflecting a 20% month-on-month increaseAs gold prices continued to rise, trading volumes on the New York Mercantile Exchange surged by 60%, contributing to a 39% increase in trading activity across global exchanges.

Amidst these tariff-induced developments, the gold price rally has also been influenced by various other factorsExpectations of re-inflation within the U.S. economy, coupled with recent movements in China regarding insurance capital investments in gold, have collectively propelled gold prices higherSince the December meeting of the Federal Reserve, the market has absorbed pressures surrounding potential moratoriums on interest rate cuts, pricing in the upward trend in short-term inflation expectations brought on by tariffs and a rebound in manufacturing

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Concurrently, the U.S. unemployment rate unexpectedly dropped to 4.0% in January, with wage growth accelerating, potentially exacerbating inflation concerns.

Despite the recent pullbacks in gold prices following the dramatic spikes, institutional outlooks remain optimistic regarding long-term price trendsFinancial giants like Citigroup, ING, and UBS project that gold could rise to $3000 per ounceUBS argues that persistent uncertainties, a prolonged global rate-cutting cycle, and robust demand from investors and central banks will continue to support gold throughout the year.

Emerging economies such as China, India, and Japan still maintain relatively low proportions of gold in their foreign exchange reservesThe ongoing trend of "de-dollarization" seems to open further opportunities for these countries to accumulate goldThis recent increase in central bank purchases initiated in the latter half of 2022 may also reflect a response to sanctions fears stemming from the U.S. "kicking" Russia out of SWIFT, as countries adjust to the broader implications for "fiat dollar credit."

Experiential evidence suggests a correlation between the pace of U.STreasury bond sales and gold purchasingThe anticipated acceleration of long-term U.STreasuries maturing by mid-2025 indicates a potential for continued gold buyingHowever, central banks may smooth their purchasing strategies to prevent rapid gold price increases, despite evident demand potential.

Further complicating the investment landscape, demand from Europe and America has been swayed by actual interest ratesA postponement of rate cuts by the Fed could signify a surge in investment demand in the latter half of 2025. Although fluctuations in rates remain a possibility, the fundamental framework tethering gold prices to actual interest rates is shifting, reflecting the broader investment climate in which Asian demand drives much of the recent movements.

The surge in Asian investment demand, particularly from China, is noteworthy

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