Trump also drove gold to a peak

The price of gold per ounce rose to a new high: $2,480 was the highest value. The sudden rise started from a level roughly $100 lower last week as a result of increasing expectations of a US interest rate cut, but the exchange rate did not exceed the previous peak of $2,450 until Tuesday.

A strong trend

In itself, the rise of gold is a logical process. As you can clearly see on the graph, the exchange rate has built a base since 2020, including a strong resistance at around $2070, where it spiked three times between 2020 and 2023, and then exceeded this level once at the end of last year, but then fell back a little. under. However, at the beginning of this year, he ran at it again and this time broke through with great force, and since then he has not come close.

According to technical analysis, this is a very strong breakout, so it is common for a longer-lasting uptrend to follow the event. The fact that the outbreak took place was helped by fundamentals: several central banks have been continuously increasing their gold reserves for years. The most important of them is the Chinese central bank, since China has huge foreign exchange reserves thanks to its trade surplus for decades. He kept most of this in American government securities, but after Donald Trump launched a tariff war against the country during the presidency, the goal was to transform the reserve.

China’s role

Instead of the dollar and US government bonds, China considers gold to be the safest, and this in itself has meant high demand year after year. This demand increased in 2022, when Russia’s foreign exchange reserves were frozen by Western countries due to the war launched against Ukraine, because a similar risk is not excluded in the case of China, should it invade Taiwan by force.

Technical factors

Other central banks also bought, including countries with rapidly growing economies, whose foreign exchange reserves also grew rapidly, and which hold a certain proportion, usually 10 percent, in gold, so they had to buy to maintain the ratio. At the end of last year, geopolitical tensions and the war in Israel may have increased demand, but after this year’s outbreak, it is believed that technical factors temporarily took over the main role.

The stable breakout, the new peak reached after four years, attracts many buyers due to the rally that often occurs at this time, but at the same time, if someone had a short position, i.e. played for a fall, it is usually closed at this time. These processes in themselves generate serious purchasing power, which can be seen on the graph.

Interest rate

There are basically two other reasons for the recent, sudden rise. One is that the chance of the start of the American interest rate cut cycle has increased, and it is expected that the process will be faster due to the favorable inflation data than what was expected so far. Since gold does not have any payment, its value is determined solely by its exchange rate, in case of higher dollar interest rates, they prefer to buy interest-bearing instruments, but in case of lower interest rates, the attractiveness of gold may increase.

Seeking refuge

The other, very important factor is that Donald Trump, as a presidential candidate, has already fallen for Taiwan, saying that the country should pay for American protection. This is indicated by the fact that Trump would continue where he left off: he would also poke fun at the allies, and presumably he would again be very hostile to China, which he already paid a lot of attention to during his first presidency. It’s no wonder if China and other states, even allies, start buying gold on this opportunity to seek shelter from the risks posed by Trump’s possible re-election.