Gold prices dip but bulls eye $5,000 amid trade war

29/04/2025 05:56 AST

Gold prices fell sharply on Monday, dropping 1.6 per cent to $3,268 per ounce, extending a decline that has seen the precious metal lose over five per cent since hitting a record high above $3,500 on April 22.

Despite the pullback, analysts and wealth managers remain optimistic, forecasting that escalating tensions between the US and China could propel gold prices to $5,000 or higher in the coming years.

The selloff comes as traders reassess gold's explosive rally, with some betting the surge may have been overextended. In New York, hedge fund managers reduced their net long positions in gold futures and options to a 14-month low, according to the latest Commodity Futures Trading Commission data.

However, the broader outlook for gold remains robust, driven by fears of a deepening economic and geopolitical rift between the world's two largest economies. The intensifying US-China standoff, marked by rising tariffs, expanding technology restrictions, and fragmenting capital markets, has heightened global uncertainty. President Donald Trump's recent remarks on Friday, dismissing another delay to his proposed "reciprocal" tariffs, have dimmed hopes for a near-term thaw in trade talks.

While Asian nations may pursue interim deals to avoid levies before a 90-day grace period expires in July, the Trump administration's framework for negotiations with 18 countries signals a protracted economic conflict.

Nigel Green, CEO of deVere Group, who predicts gold could reach $5,000, described the situation as a "strategic decoupling" with far-reaching implications. "What began as a tariff spat is evolving into a geopolitical and economic confrontation," Green said. "In this environment, gold is becoming the ultimate financial insurance."

Frank Holmes, CEO of US Global Investors and Executive Chairman of Hive Digital Technologies, is even more bullish, projecting gold could climb to $6,000 by the end of Trump's term. He attributes the rally to a "structural reset of the global financial system," driven by de-dollarisation and aggressive gold accumulation by sovereign nations, particularly China.

The dollar, long viewed as the global safe haven, is losing ground as US-China tensions erode investor confidence. Paradoxically, this has bolstered demand for dollar-denominated assets like gold. "The more strained the relationship between Washington and Beijing becomes, the less confidence investors have in the dollar," said Adrian Ash, director of Research at BullionVault.

Political uncertainty within the US, including Trump's attacks on Federal Reserve Chair Jerome Powell and reports of efforts to undermine the Fed's independence, has further rattled markets. "Gold does best when people lose faith in central banks," Ash noted. Gold's recent surge to $3,500 marked its third $100 gain in eight sessions, with prices hitting record highs in other currencies, including £2,600 in the UK. This global rally underscores the widespread impact of Trump's second term, which has introduced volatility across financial markets.

Analysts warn that the current gold surge reflects a repricing of risk in a world increasingly defined by economic nationalism. Both the U.S. and China are pursuing state-driven industrial strategies and supply-chain protectionism, embedding inflationary pressures into the global economy. Unlike past inflationary cycles driven by excess demand, this structural inflation stems from disrupted trade flows and fractured financial systems.

"The days of cheap, frictionless trade are behind us," said Arun Sai, a senior multi-asset strategist with Pictet Asset Management. "This means higher structural inflation, weaker currencies, and a renewed focus on hard assets like gold." Sai advises investors to diversify away from US assets, with gold, German Bunds, and high-quality credit likely to benefit from portfolio reallocation.

As the risks of a full US-China decoupling grow, wealth managers are urging clients to bolster gold allocations. The metal, long a store of value during times of upheaval, is proving its strategic relevance as a hedge against currency instability and geopolitical uncertainty. "Gold is not just a hedge; it's becoming a core allocation," Green said.

Should Washington and Beijing continue to escalate rather than de-escalate, analysts expect significant inflows into gold. "The current surge is not a speculative spike," Holmes emphasised. "It reflects a fundamental shift in how investors perceive risk."

While Monday's decline may signal a temporary breather, the consensus among experts is clear: gold's long-term trajectory remains upward. As global trade fragments and economic nationalism takes hold, the precious metal is poised to shine as a beacon of safety in an increasingly uncertain world.