The price of gold spot surged to a record high of $2801 per ounce on January 30th. The Federal Reserve decided to maintain the current exchange rate unchanged; the US economic growth is lower than expected; the US implemented new tariff policies starting from February 1st. Some analysts believe that the above-mentioned policies and economic conditions of the United States, as the world’s largest economy, have led to strong market demand for hedging, thereby pushing the gold price to an all-time high.
On January 30th, the price of gold spot broke through the $2800 per ounce mark, closing at $2801.00, setting a historical record; on February 1st, it remained high at $2801.00, reaching a peak of $2817.57 at one point.
The recent increase in the price of gold is believed to be related to several moves by the United States.
Firstly, President Trump’s remarks on imposing tariffs raised market concerns. On January 30th, Trump told reporters at the White House that the US will start imposing a 25% tariff on goods from Mexico and Canada starting from February 1st, and a 10% tariff on China. Currently, the US has begun implementing this economic policy.
In the short term, the gold price has been on the rise since December 18, 2024, before Trump returned to the White House, increasing from $2593.85 to $2801.00 on February 1, 2025, a rise of $208.85 in a month and a half.
Trump has used tariffs to address issues such as international trade imbalances since his first term, and during his second campaign, he specifically stated his intention to impose high tariffs on countries like China. The rise in the price of gold as Trump returns to the White House is seen as reflecting market concerns about future trade conflicts, supported by strong demand for safe-haven assets.
Trump’s tariff hikes have also attracted attention and concern from the international community. The Japanese newspaper “Nikkei” believes that if the United States truly implements an expanded tariff policy in the future, the global economy is likely to be adversely affected due to trade stagnation, disrupted transportation, and supply networks.
Professor Sun Guoxiang from the Department of International Affairs and Business at Nanhua University in Taiwan told Epoch Times that this is a manifestation of “market risk sentiment,” with the international market possibly being concerned about future economic uncertainties, leading to an increased demand for gold as a safe-haven asset.
He also stated, “If the US’ trading partners experience economic slowdowns or international conflicts that impact global trade, it will also affect the US’ economic growth.”
On January 30th, Federal Reserve Chairman Powell stated that there is no urgency for the Fed to adjust its policy stance and will keep the benchmark federal funds rate unchanged at the current 4.3%. After lowering rates from a 20-year high, the Fed is trying to determine if there is room for further rate cuts.
Sun Guoxiang said, “The uncertainty of Fed policy” has also led to the rise in gold prices. “Although the Fed did not cut rates, the market still expects possible rate cuts in the future. This could lead to a weaker dollar, thereby boosting gold prices.”
He added that despite the Fed keeping rates unchanged, the persistently high US inflation could drive investors to view gold as a hedge against inflation.
A report released by the Bureau of Economic Analysis (BEA) on January 31st showed that the US inflation rate slightly increased from 2.4% in November to 2.6% in December; the core PCE price index rose by 2.8% during the same period, consistent with the November reading and market expectations.
These data confirm that the Fed’s stance of observing economic developments before taking action is justified. The Fed will convene its next meeting on March 18th-19th to decide whether to cut rates.
While some remain cautious about US economic growth, the market generally remains optimistic about the future of the US economy. Goldman Sachs expects the US GDP growth rate to reach 2.4% in 2025, higher than the market’s general expectation of 2.0%; consumer spending is expected to increase by 2.3%.
After Trump took office, the overall trend of the US dollar against the Chinese Renminbi has been declining, from 7.31 RMB per US dollar on January 20th to 7.18 RMB per US dollar on January 31st. This trend, in contrast to the rising gold prices, reflects an inverse relationship.
Sun Guoxiang explained that “Gold usually has an inverse relationship with the dollar; a weaker dollar tends to drive up gold prices.”
On January 30th, Trump once again warned the BRICS countries not to challenge the status of the dollar as the international reserve currency, or face 100% tariff sanctions. The Communist Party of China (CPC) has been trying to rally BRICS countries to challenge the US’ international leadership.
In a post on the social media platform “Truth Social,” he stated, “We will demand these seemingly hostile countries commit: not to create new BRICS national currencies or support any other currency to replace the powerful dollar. Otherwise, they will face 100% tariffs and be prepared to bid farewell to selling goods to the US economy.”
The BRICS countries mainly include Brazil, South Africa, India, Russia, and China, with Egypt, Ethiopia, Iran, and the UAE joining in 2023, and Indonesia becoming a member earlier this month. The BRICS group represents 45% of the global population and accounts for 35% of the global economic volume. China alone represents more than half of the BRICS countries’ total economic output.
The stability of the US dollar, as the main currency for the pricing of major commodities such as gold and oil, means that funds often flow into investments in the dollar during uncertain times, playing a significant leadership role in the global economy. Furthermore, since the outbreak of the pandemic, with increasing geopolitical risks and a strengthening US economy, the dollar has remained strong.
Trump’s warning immediately received an active response from Moscow, with the Kremlin once again denying on January 31st that the BRICS countries have a plan to create new currencies to replace the dollar.
A report released by the Bureau of Economic Analysis on January 30th showed that last year, driven by continued consumer spending, the US economy steadily grew, with the Gross Domestic Product (GDP) growing by 5.3% in 2024 before inflation adjustments, with an actual GDP growth rate of 2.8%.
However, the annualized GDP growth rate for the fourth quarter of last year was 2.3%, lower than the 3.1% in the third quarter and below economists’ expectations of 2.5%.
Regarding the reasons for the US economic growth and the rise in gold prices, Sun Guoxiang stated that the primary factor for the recent increase in gold prices, apart from other factors mentioned, is the slowdown in economic growth. “The latest GDP growth rate announced by the US is 2.3%, lower than expected, indicating a slowdown in the US economy, with increasing market concerns about economic recession. This could lead investors to seek safe-haven assets such as gold.”
On August 15, 1971, US President Nixon announced the suspension of the gold peg of the US dollar by governments or central banks. Prior to 1971, after World War II, the US required most countries’ currencies to be pegged to the dollar, which in turn was pegged to the price of gold, with 1 ounce of gold being pegged at $35. Since then, the price of gold has risen steadily, from $35 to the current $2801, an increase of nearly 80 times.
With regard to the future trend of gold, Sun Guoxiang believes it will depend on several key factors. Firstly, it is the Fed’s policy. If the Fed chooses to continue raising interest rates in the future or maintains high rates, the price of gold may come under pressure. This is because high rates are usually unfavorable for the attractiveness of gold.
“If the Fed instead lowers rates, it may continue to drive up the price of gold,” he said. “If US inflation remains high, investors may allocate more gold to hedge against inflation risks. Additionally, there are global economic risks. If there is an economic recession, such as the Russia-Ukraine conflict or heightened geopolitical risks globally, the demand for gold will also further rise.”
Sun Guoxiang noted that the rise in gold prices will also have an impact on the Chinese economy. If the price of gold rises, it may attract more international funds towards the gold market. Especially during periods of economic uncertainty, investors may reduce investments in the stock market and other assets. This may affect the flow of global capital, thereby affecting the stability of the Chinese stock market and capital markets.
The rise in the price of gold is usually accompanied by the fall of the dollar. He believes that “This may affect China’s trade environment, especially if the dollar weakens, leading to price fluctuations in Chinese imports and exports.”
Sun Guoxiang emphasized that China is an important trading partner of the United States, and if the US’ economic growth slows down, it may decrease the demand for Chinese goods, having a negative impact on China’s exports. In addition, China’s financial markets may also cascade with effects. Investors may be concerned about the risks in the Chinese market, leading to capital outflows or market volatility.