Gold Monthly View for February 2025

The bullish momentum for gold carried on into February 2025, with spot prices maintaining their upward trajectory and surpassing the $2,900 threshold. Eventually, the all-time high was breached, now standing at $2,956. Gold's remarkable ascent in 2025 has been nothing short of impressive, reaching nine new record highs year-to-date, despite occasional price volatility. However, as February 2025 ended, Gold lost its momentum and gave up on some gains in last two trading sessions, dipping to ~$2850. Despite this, the precious metal has shown exceptional performance, with spot prices which rose nearly 2% in February 2025 after an increase of 9% in January 2025.

Since the onset of his campaign, President Trump has consistently promoted the "America First" policy, with imposing of tariffs on foreign nations being a central aspect of his economic agenda. The ongoing tariff conflict, particularly with China, Canada, and Mexico, has had far-reaching effects on global trade and market dynamics. The imposition of tariffs on key imports such as steel, aluminium, and various technology products sparked significant economic uncertainty, intensifying market volatility. These persistent trade tensions heightened concerns about a potential economic slowdown, prompting investors to flock towards assets like gold. Consequently, gold prices surged, reaching new record highs, as investors sought to hedge against possible financial instability. The tariff war not only strained international relations but also potentially pressure inflation, further bolstering gold’s appeal as a reliable store of value. The resulting instability, coupled with worries over global economic growth, continued to drive demand for gold.

The ISM Manufacturing and the Atlanta Fed GDP data are pointing to some slow down. The U.S. job market continues to be mixed. The U.S. economy saw an addition of 143,000 nonfarm payroll jobs in January 2025, with the unemployment rate dipping to 4%. However, this job growth although positive, fell short of the consensus expectation of about 175,000 jobs. Job gains were primarily observed in sectors such as healthcare, retail trade, and social assistance. On the other hand, wage growth exceeded expectations, rising by 0.5% month-over-month (compared to the anticipated 0.3%), and with a year-over-year growth of 4.1%. Fed will wait to see if the job growth decelerates further to take a call on rates else run a risk of wage growth feeding into overall inflation.

The January 2025 Consumer Price Index (CPI) report exceeded expectations, with the headline figure rising by 0.5% month-over-month (MoM), following a 0.4% increase in December 2024. Core CPI, which excludes food and energy, rose by 0.4%, up from a 0.2% MoM increase in December 2024. This resulted in a headline CPI reaching 3%, up from the 2.9% increase in December 2024, and the core CPI rising to 3.3%, up from 3.2% in December 2024. This perking up of inflation and further uncertainty from potential impact of tariffs provided a boost to gold.

Since the return of President Trump to White House, concerns regarding the potential imposition of tariffs on gold imports led to significant shifts in the gold market, prompting a surge in gold imports into the U.S. This unexpected influx resulted in a notable increase in commodity exchange inventories, despite the U.S. being largely self-sufficient in gold. Traders, apprehensive about potential tariff-related costs, began pre-emptively moving gold to the U.S. Consequently, the price of Commodity exchange gold futures rose, and the spread between futures and spot prices widened significantly. While London’s gold inventories have decreased, this decline is believed to be indicative of logistical challenges rather than a genuine supply shortage. However, signs of normalization are beginning to emerge, with slowing inventory buildup, decreasing spreads, and cooling lease rates which went up over 5% earlier, now reported below 2.5%. What was touted as some panic in gold markets with various controversies and fear mongering, was nothing more than technicalities of the gold markets and should not be read much into.

The short-term outlook for gold is significantly influenced by a confluence of critical factors, including the prevailing geopolitical landscape, economic conditions, and the upcoming Federal Open Market Committee (FOMC) meeting scheduled for March 2025. The ongoing trade tensions, particularly those stemming from the United States, have created a complex but supportive environment for gold prices. However, recent developments suggest a potential thaw in geopolitical tensions, multiple diplomatic talks currently underway may pave the way for a more stable international climate. Furthermore, inflation appears to be well-contained but rising wage pressure and tariff impact needs to be monitored. Collectively, these elements as they play out over the short term may lead to some consolidation in gold prices; an opportunity to build out the right allocation to gold. Current economic uncertainty and any negative repercussion of Trump’s policy making can impact growth adversely creating a supportive environment for gold limiting downsides.

In the long term, the policies implemented by central banks are likely to have a profound impact on the gold market. Should central banks continue to adopt accommodative monetary policies in response to ongoing economic challenges, this could provide additional support for gold prices. The escalation of trade tensions is expected to influence macroeconomic indicators and the overall growth trajectories of various countries. Considering these developments, central banks may opt to ease their monetary policies further, potentially moving away from reliance on a dominant currency holding. Such a shift could create a more favourable environment for gold, as the precious metal is traditionally viewed as a diversifier in times of competitive currency devaluations and economic instability. Consequently, the interplay between central bank actions and global economic conditions will be crucial in determining the future trajectory of gold prices, and something investors would keep an eye on.

Source: World Gold Council, The Ministry Of Statistics And Programme Implementation

Above article is authored by Quantum.

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