Gold prices rose, holding above $5,000 an ounce for the second day, as a weaker dollar helped extend a rally fueled by geopolitical risks and investors abandoning sovereign bonds and currencies.
The precious metal jumped as much as 1.4% on Tuesday, marking its seventh consecutive day of gains. US President Donald Trump threatened to raise tariffs on South Korean goods, while the dollar fell to its lowest level in nearly four years amid growing speculation that the US might help Japan prop up the yen, making precious metals cheaper for most buyers. Silver rose by about 7%.
Declining confidence in traditional assets
The sharp jump in gold prices, with the metal more than doubling in value over the past two years, underscores its historical role as a barometer of market anxiety.
After posting its best annual performance since 1979, gold has risen by an additional 17% since the start of the year, driven largely by what is known as the currency devaluation trade, where investors withdraw from currencies and Treasury bonds. The heavy selling in the Japanese bond market is the latest example of investors' aversion to massive fiscal spending.
In recent weeks, the Trump administration's actions—from challenging the Federal Reserve's independence to threatening to annex Greenland and military intervention in Venezuela—have contributed to market turmoil. The US president's warning to South Korea also came after his threat earlier in the week to impose 100% tariffs on Canada if Ottawa concludes a trade agreement with China.
Options contracts bets and anticipation of the Federal Reserve's decision
Options traders are betting on gold's continued rise as investors diversify away from US assets. Implied volatility for gold futures on the Comex exchange has climbed to its highest level since the peak of the coronavirus pandemic in March 2020, while volatility in State Street's SPDR Gold Shares ETF, the world's largest gold-backed exchange-traded fund, has broken similarly upward.
Fouad Razakzadeh, an analyst at SetIndex, said: Traders are buying on dips rather than selling on rallies. As long as this mindset persists, it's difficult to argue against rising prices in the near term, even if there's a short-term disconnect between fundamentals and reality.
Looking ahead, investors are also watching the Federal Reserve's moves on Wednesday, as the US central bank is widely expected to halt its interest rate-cutting cycle, with the labor market stabilizing and some consensus returning within the bank after months of increasing division.
Gold rose 1.2% to $5,067.84 an ounce by 1:00 PM in Singapore. Silver climbed 4.3% to $108.25 an ounce, after hitting a record high above $117.71 in the previous session before retreating.
Platinum and palladium also rose, while the Bloomberg spot dollar index climbed 0.1%, after having fallen 0.4% in the previous session.
