Gold Surges 10% in 2025 as Trade War Concerns Fuel Demand

Gold Prices Hit Record Highs Amid Tariff Uncertainty and Federal Reserve Policy Shifts

Editorial Team (ET)May 8, 2025

Gold has been on a relentless upward trajectory, surging 10% year-to-date, as global trade tensions and tariff threats fuel investor demand. The precious metal briefly touched an all-time high above $2,960 before pulling back, reflecting heightened economic uncertainty and an increasing appetite for safe-haven assets.

Gold’s Meteoric Rise: What’s Driving the Surge?

Gold’s rally has been fueled by a combination of factors, with trade war concerns and geopolitical instability playing a pivotal role. President Donald Trump’s recent executive order imposing a 25% tariff on steel and aluminum imports has intensified fears of retaliation from global trading partners, particularly the European Union. With markets on edge over the potential fallout, investors are hedging their bets with gold, a historically reliable store of value in turbulent times.

UBS Global Wealth Management’s chief investment officer, Solita Marcelli, reinforced this sentiment, stating, “We continue to see gold as an effective portfolio hedge and diversifier.” The firm has even raised its gold forecast to $3,000 per ounce by 2025, citing strong demand and fragile risk sentiment.

The Federal Reserve’s Role in Gold’s Rally

Beyond tariff threats, expectations of further Federal Reserve rate cuts later this year are adding momentum to gold’s rise. Historically, lower interest rates reduce the opportunity cost of holding gold, making it an even more attractive investment. Analysts are closely watching Wednesday’s Consumer Price Index (CPI) data, which could provide further clues on the Fed’s next move.

If inflation remains sticky and the Fed holds off on rate cuts, gold could see short-term pullbacks. However, if inflation eases and the Fed resumes its dovish stance, gold could extend its gains well beyond current levels.

Central Banks and ETFs Fueling Gold Demand

Another major catalyst behind gold’s surge has been record-breaking central bank buying. The World Gold Council recently reported a sharp increase in gold purchases by central banks, particularly in China and emerging markets. This institutional demand has provided strong price support, helping gold maintain its upward trajectory.

Additionally, China’s decision to approve 10 insurance firms to purchase gold as part of a pilot program is expected to drive further demand. Nigel Green, CEO of global financial advisory firm deVere Group, called it a game-changer, stating, “China’s green light for insurers will supercharge demand.”

Short-Term Risks: Can Gold Hold Its Gains?

Despite gold’s remarkable run, analysts warn of potential pullbacks. Goldman Sachs cautioned that while gold is an excellent portfolio diversifier, its rapid ascent raises concerns about short-term overextension. If tariff threats ease or if inflation surprises to the upside, gold could face temporary headwinds.

However, with ongoing geopolitical tensions, Federal Reserve policy uncertainty, and continued demand from central banks and institutional investors, gold’s long-term outlook remains bullish. The metal’s role as a safe-haven asset has never been more relevant, and analysts expect continued strength as macroeconomic conditions evolve.

Conclusion

Gold’s 10% year-to-date surge underscores its status as a safe-haven asset amid global uncertainty. With tariff threats, Federal Reserve policy shifts, and central bank demand driving prices higher, gold remains a crucial hedge for investors navigating an unpredictable economic landscape. While short-term volatility is inevitable, the broader trend suggests gold could continue to shine in the months ahead.

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