The price of gold rose by over 6% last week, making this one of its strongest performances thus far into the year. While geopolitical and economic instability have long influenced the demand for this precious metal, a growing trend where countries reduce their reliance on the U.S. dollar seems to be playing a role behind the current surge.
Nations are diversifying reserves, inflation fears are rising, and institutional investors are turning to gold-backed assets. This shift, often referred to as dedollarization, is prompting many investors and governments to seek more independent and stable stores of value, with gold emerging as a primary alternative.
Below, we explore the key drivers of this shift and why many expect gold’s rally to continue.
- Trade conflict between America and China
At the start of April, President Trump announced reciprocal tariffs targeting countries with considerable trade surpluses with America, aimed at reducing reliance on foreign imports, creating new employment opportunities and encouraging domestic manufacturing.
China was among the hardest hit countries, with its total tariff rate surging to 145%, a move that prompted Beijing to increase tariffs on American goods to 125%.
This conflict is fueling concerns about inflation, with many expecting that this, coupled with the new levies from Canada and the European Union, will increase input costs across the world economy significantly.
Some economists also warn that inflation could hit 5%, noting that these risks are pushing investors towards gold, which can be used as a hedge against uncertainties.
- Rising ETF and central bank demand
Last week’s figures show that inflows into gold-backed ETFs rose, with the gold holdings of central banks also increasing. These moves demonstrate efforts to decrease reliance on the greenback while safeguarding nations against geopolitical risk.
- Declining confidence in the dollar
The last week ended with the dollar index closing below 100 for the first time in years, which indicates declining value compared to other currencies. 10-year and 30-year yields also surged, signaling growing uneasiness over America’s fiscal sustainability and expectations of higher inflation.
- Unresolved tensions on Federal Reserve policy
The recently introduced tariffs are also expected to rekindle inflation, which may make it hard for the Federal Reserve to determine their course of action and adds to gold’s appeal.
Outlook
The increasing demand for gold by central banks, a weakening dollar, and growing risk for inflation are all driving the demand for this precious metal. Many expect gold’s demand to remain high unless America can restore confidence in its fiscal policy or resolve current tensions.
As gold continues to surge, companies like Torr Metals Inc. (TSX.V: TMET) in the gold production value chain are likely to start fielding higher levels of investor interest in their stocks.
NOTE TO INVESTORS: The latest news and updates relating to Torr Metals Inc. (TSX.V: TMET) are available in the company’s newsroom at https://ibn.fm/TMET
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