Gold Monthly View for April 2025

Gold continued its upward momentum in April 2025 reaching as high as $3,495 an ounce. In April 2025, gold recorded a rise of around 15% at peak just before witnessing a moderate correction. By the end of April 2025, Gold settled at $3,289, rising by 5.3% for the month. The dollar index has been declining for quite some time now, losing over 8% since the beginning of this year, as assets flee U.S. shores on account of uncertain policy making leading to a trust deficit, benefitting gold. This is despite the U.S. bond yields remaining elevated, currently above 4.3%. In Indian Rupee terms, gold touched the high of Rs. 1,00,000 for the first time, however closed lower.

The unpredictable nature of Trump’s tariffs has become a focal point. After announcing tariffs and delaying them multiple times just before they were set to take effect and initiating a trade war with its biggest trade partner, China, Trump has led the world into a situation where uncertainty stands at its peak. The trade policies of the Trump administration have introduced significant uncertainty, raising concerns about inflation, slowing economic growth, and the potential for recession, as well as shifting global dynamics. Although a 90-day pause was announced for all countries except China, it did not significantly change the situation, as such abrupt decisions have disrupted the long-standing certainty in policymaking and the rule of law. Both China and the U.S. have implemented retaliatory tariffs, further contributing to the uncertainty. Consequently, China has experienced a notable increase in gold purchases as investors seek safety amid escalating trade tensions with the U.S.

The rift between the U.S. President and the Fed Chair has never been so pronounced despite similar difference in opinions between past presidents and then Fed chairs. Jay Powell, in his speech, expressed concerns about trade policies and their impact on the U.S. economy, stating that these policies are likely to divert the Fed from its targets. While Trump’s statements have undermined and threatened the Fed’s independence, eroding investor confidence, regulations though have helped prevent the severity.

The latest economic data continues to point toward a developing U.S. recession. The ISM Manufacturing reports for March and April 2025 showed contraction in growth measures combined with rising prices, indicating stagflationary possibility. All the indexes related to production were well into contraction territory whereas the price index was well into expansion territory. Despite some temporarily strong data due to tariff related front running, trade-related slowdowns and evolving government policies could impact economic activity over the next few months. In this scenario, gold may become more attractive to investors seeking safety. Conversely, if the Fed prioritizes growth over inflation, as it has in the past, this could further support gold prices by lowering real interest rates.

Outlook

With the two largest economies embroiled in a tit for tat trade war, a mutually beneficial trade deal will not be easy to arrive at. However, in recent developments, both China and the U.S. have indicated that negotiations are underway, and a mutual outcome may be reached, as both countries recognize the impact on their economies and the world. If any agreements are signed, it would lead to a de-escalation of the situation, and the atmosphere of uncertainty would begin to clear. In such a scenario, gold may experience some unwinding of the premium, however, uncertainty surrounding Trump and underlying structural factors would likely provide a floor for gold prices.

Central banks have been net buyers of gold, with purchases exceeding 1,000 tons for three consecutive years. With China leading the front, India has not lagged while making purchases of around 57.5 tonne in FY 25, its highest in seven years. We maintain our view that this long-term trend of diversification of reserves and investments into gold will continue to unfold and probably accelerate marking an important support for gold markets. Thus, long-term economic factors remain supportive of gold.

Many investors are under-allocated to gold and hence significant room to increase. The run-up in gold prices has been structural, not speculative. That said, no asset moves up in a straight line. Global uncertainty is here to stay for now, and gold prices will be volatile as the news ebb and flow. As the tariff related uncertainty reduces due to trade deals, gold prices may see some pull back,investors can use this volatility to increase their gold allocation over the next few months.

Source: Bloomberg, World Gold Council

Above article is authored by Quantum.

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