Why have gold prices reached record highs?

As the Trump administration start to implement its protectionist measures of sweeping tariffs on imports, the price of gold has increased by more that 7% since the inauguration of Donald Trump. It has gone up from US$2710.3 to 2931.6/troy ounce*. When there is a reduction in trade it is usual for gold prices to increase and the more tariffs there are the better it will be for those that hold gold. Trump plans to introduce reciprocal tariffs on US trading partners with an additional 10% tariffs on goods from China.

*A troy ounce is a system of weights used for precious metals and gems, based on a pound of 12 ounces as opposed to the traditional 16.

A global trade war = reduce growth = increased inflation = higher gold prices.

Gold can therefore act as a geopolitical hedge to this global trade war and the overall chaos in the political and economic arenas today.

Other examples when gold has surged in price.

Over the years the store value of notes and coin hasn’t maintained its value like gold. Gold has been seen as a way to pass on the wealth of one generation to the next. What are some other reasons why gold goes up in price:

• The US dollar is seen as the reserve currency and when its value drops there tends to be move towards buying gold as security and this ultimately increases its price. After the GFC of 2008 the price of an ounce of gold went from approximately $1,000 to $1,900.

• Geopolitical uncertainty also sees people look to gold for relative safety – a good example was the drone strike that killed Qassem Suleimani, leader of the Quds Force of Iran’s Islamic Revolutionary Guard Corps. The price of gold rose around 3% one week after the event. The events of 9/11 saw gold rise by 6%.

• Gold is also very prevalent in the culture of some countries. India is one of the largest gold-consuming countries and it mainly used for jewellery.

Below is a clip from the Corporation Documentary where commodities trader Carlton Brown gives his reaction on the trading floor when the events of September 11 were unfolding. He talks of the price of gold ‘exploding’.

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