Why gold has slipped during market rout despite safe-haven status

The price of gold has stabilised after slipping from its recent record highs —  in what had been a somewhat counterintuitive move for the commodity, which is broadly considered a safe haven at times of turbulence.

The spot gold price hit an all-time high of $US3,133 ($5,252) an ounce last week, as a global market rout triggered by Donald Trump’s latest tariff announcements began, wiping off trillions of dollars on Wall Street.

The recent move lower in gold saw the price dip below $US3,000 an ounce earlier this week, before being stabilised above that mark on Wednesday afternoon.

“A lot of investors have been getting margin called over the last two trading days, and they’ve been liquidating their gold holdings in order to free up cash to meet those margin calls,” senior macro strategist Ben Picton from Rabobank Australia told The Business.

A margin call is when stock markets fall substantially and brokers ask investors to free up additional cash to cover potential losses.

But analysts believe the downturn in prices is going to be short-lived and gold is likely to rise again.

“Gold is seen as an inflation hedge, and tariffs are seen as being inflationary, particularly in the United States in the short term, but also for the global economy in the longer term,” Mr Picton added.

Why did the price of gold surge?

The price of spot gold has risen about 15 per cent so far this year.

Analysts from Macquarie Bank say gold could go as high as $US3,500 an ounce in the September quarter.

Fears of a global recession, stoked by Mr Trump’s tariff policies, have prompted investors to seek refuge in the safe haven asset in recent months.

“Gold is considered a safe haven asset because it’s limited in quantity,” Shaokai Fan, who is the global head of central banks at the World Gold Council, told The Business.

“Generally speaking, it’s a trusted asset that performs well during periods of instability, so people tend to rotate or gravitate toward gold when there’s uncertainty in markets.”

Since Mr Trump took office in January, gold price has hit a record high more than 20 times.

Global share markets began plunging last week, after Mr Trump announced sweeping “Liberation Day” tariffs targeting imports from its trading partners, with Wall Street posting its largest single-day loss in five years.

While gold has been exempt from Donald Trump’s tariffs for now, investors were worried that the tariff threat is moving into the gold market.

Mr Fan, who is based in New York, said there has been a significant amount of gold bars shipped to New York from elsewhere, particularly from London, which is the world’s gold trading hub.

“The US has a very large gold derivative market that can be settled physically,” he said.

Why are central banks hoarding gold bars?

Much of the recent rally in gold price was driven by demand from central banks.

The White House froze Russia’s US dollar assets following the invasion of Ukraine in 2022.

Spooked by the sanctions, central banks have been stockpiling tonnes of gold bars as they diversify their reserves away from the US dollar.

Since then, more than a fifth of total gold in the market was snapped up by central banks each year, which analysts say is unprecedented.

“Central banks have bought over 1,000 tonnes of gold every year since the beginning of that war, which is double the amount that they bought in the decade before.”

Latest data from the World Gold Council shows central banks have continued their strong interest for gold in Janurary and February, purchasing 42 tonnes for the period.

At the official level, most of the top 10 holders of gold are Western countries.

The US is the largest holder of gold, with more than 8,133 tonnes of gold held by the US government and the Federal Reserve, according to data from the World Gold Council.

However, Russia, China and India emerged on the top 10 list in recent years and have been the main drivers of gold buying.

“For a country like Russia, who has been subject to US sanctions in the recent past and had their [US dollar] reserve assets frozen, they would like to get into an asset that can’t be frozen under the US world system of trade.”

What happens if Trump imposes tariffs on gold?

Mr Picton said if Donald Trump imposes tariffs on gold sent to the US, it’s likely that American consumers will bear the brunt.

“We would see higher gold prices inside the United States and maybe slightly lower gold prices elsewhere,” he explained.

“It probably doesn’t change the amount of demand globally… the United States maybe supplies its own domestic market with more of its own product, and other countries are maybe not exporting as much to the United States.”

He added that the scenario of Trump imposing tariffs on bullion is unlikely.

Jordan Eliseo is the general manager at ABC Bullion, a major bullion dealer.

It receives gold from its sister refinery, which refines around half of Australia’s gold into 99.99 per cent purity bars that are then sold on the world market.

“It’s been an incredible few years for the bullion market,” he told The Business, adding the company saw a 15 per cent growth in sales last year.

Mr Eliseo dosen’t think tariffs will have negative impact on his company.

“The gold market as a whole… is a multi-trillion-dollar market, and hundreds of billions of dollars of gold trade daily,” he said.