Gold bulls charge ahead: How tariffs, Fed cuts, and geopolitics is fuelling the rally

Comex gold futures surged to record highs in February, marking their second consecutive monthly gain, driven by geopolitical tensions, economic uncertainties, and shifting investor sentiment. Concerns over President Trump's proposed tariffs on imports from Canada and Mexico, along with retaliatory measures, sparked fears of a looming trade war and potential inflationary pressures, fuelling gold's rally. In the US, the SPDR Gold Trust, the world’s largest gold-backed ETF, saw its holdings rise to a multi-month high of 904.38 tonnes, reflecting strong investor demand. Globally, central bank gold purchases also increased, with the People's Bank of China (PBoC) re-entering the market, reinforcing gold's status as a key reserve asset. Furthermore, a gold investment pilot program by Chinese insurers and rising holdings of Chinese gold ETFs indicate growing institutional interest in the precious metal.

Domestically, MCX gold futures mirrored this trend, hitting an all-time high of ₹86,592 per 10 grams, settling 2.80% higher last month and posting an impressive 11.4% gain year-to-date. This strong performance was further bolstered by record inflows into Indian gold ETFs, with January witnessing net inflows of ₹37.5 billion (~$435 million), significantly surpassing the previous 12-month average. Additionally, the RBI’s resumption of gold purchases, adding 2.8 tonnes to its reserves, signalled continued central bank interest in the precious metal.

However, Comex gold futures experienced a pullback in the last week of February, ending an eight-week winning streak and slipping below $2,850 per ounce due to profit-taking, a stronger US dollar, and the unwinding of net long speculative positions. Despite this, geopolitical uncertainties—including President Trump's decision to pause military aid to Ukraine and ongoing hostilities between Israel and Hamas—continue to support gold's safe-haven appeal. Additionally, disappointing US economic data, including rising unemployment claims, a slowing housing market, and declining personal spending, have fuelled expectations of two Fed rate cuts this year, likely in June and September. The growing risk of stagflation, exacerbated by Trump's tariff plans, supports higher gold prices. Retaliatory tariffs from the US's major trading partners reflect escalating trade tensions, further boosting safe-haven demand. Recently, US Commerce Secretary Howard Lutnick hinted at a potential tariff compromise with Canada and Mexico. If an agreement is reached and levies are eased, it could put downward pressure on gold prices.

Going forward, investors will closely monitor key US data releases, including labour reports, FOMC projections, and GDP figures, which will influence Fed rate cut expectations. While gold may face short-term pressure, its outlook remains strong, supported by robust investment demand, central bank purchases, and rising geopolitical and economic uncertainties. From a technical perspective, Comex gold may face resistance at $2,955 and support at $2,865, while key levels for MCX gold stand at ₹86,600 and ₹84,200.

Meanwhile, Comex silver futures experienced a pullback, settling near $31.50 per ounce in February after reaching three-month highs above $34.20. This decline was driven by supply-demand uncertainties amid trade tariff concerns. President Trump’s proposed tariffs on imports from Mexico, Canada, and China heightened fears of disruptions in industrial demand. However, silver may recover this month, as China’s 2025 growth and fiscal deficit targets, along with a "special action plan" to stimulate consumption, have raised hopes for fiscal support amid the ongoing trade war with the US.

Views are personal. The author is AVP - Commodity Research, Kotak Securities.