Gold is speeding down the highway, setting new records practically every day. Gold price hit its most recent all-time high last night at $3,218 and is up by 37% over the last 1-year.

After crossing $3,000 in March, gold faced some pressure. The sell-off in the equity market resulted in massive margin calls for traders, thus, gold had to be liquidated to meet those margins.

Now, gold is back above $3,000 and going strong. Currently, gold trades around $3,232, driven by safe-haven demand amid rising US-China tensions. In India, the gold rate today is Rs 93,500 and is steadily inching towards the Rs 1 lakh mark.

The chart below shows gold falling below $3,000 and then bouncing back.

Source: Tradingeconomics

Gold has already gained over $400 year-to-date, thanks to various reasons favouring the yellow metal. Three possible reasons for the safe-haven buying in gold: The bond market meltdown, pressure on the US Fed to cut rates, and the weakening of the dollar.

Bond Market Meltdown

US Treasuries are considered to be the safest place to park one’s money. After all, US Treasury bonds are backed by the sovereign power of the United States government. But then one event may have dented that belief. Yes, it was Trump, and his obsession with tariffs. Trump was adamant on the implementation of tariffs from April 9, and a day before, the US Treasury market cracked.

That day, there was huge selling pressure on US Treasuries, sending bond prices lower and yields sharply higher. That day, the 10-year US Treasury yield shot up towards 4.5%, a six-week high.

Subsequently, however, calmer heads prevailed. Trump announced a 90-day moratorium on reciprocal tariffs, except for China. The bond market sell-off could have been a factor in Trump’s softening stance. The selloff in the bond market calls into question the reliability of Treasuries as a traditional haven.

In this uncertainty around treasuries, a favourite go-to for parking funds, investors turned to gold. This is not very surprising as to an investor, now US bonds appear relatively unsafe. No wonder gold has been considered ‘God’s Own Currency’ since time immemorial.

Tip to Note: When the 10-year US Treasury yield spikes, gold shines.

Dollar and Gold

The US dollar is under pressure. Trump’s protectionist policies are resulting in dollar assets being dumped by global investors. From equities to bonds, investors are selling dollar-denominated assets. As a result, the Dollar Index, which measures the US dollar against a basket of global currencies, is sliding down fast.

Over the last 3 months, the US Dollar Index has fallen from 109 level to below 100. That’s a 3-year low for the dollar.

Source: MacroMicro

According to World Gold Council’s Gold Return Attribution Model, strength in the Euro and thus US dollar weakness has been a key driver of gold’s recent performance.

Currently, the trade war is centered on the US-China relationship. While both nations have imposed heavy tariffs on each other, China has gone a step further. China’s central bank reportedly told large lenders to cut dollar purchases.

Gold’s safe-haven position is benefiting from the dollar’s weakness. Any fall in the US dollar index makes gold more attractive compared to non-dollar assets.

Tip to Note: When the dollar weakens, gold shines.

Pressure on the US Fed to cut rates

US inflation is trending lower. That’s good news for gold.

March US CPI data came in lower than expected, raising hopes for a US Fed rate cut. The Fed’s policy rate is currently in the 4.25%-4.50% range, unchanged since January. Trump has been ‘forcing’ Powell to cut rates, but the Fed chief has repeatedly said that rate cuts will only be data-dependent.

Markets expect a 50-100 bps rate cut in the second half of 2025. That is a fertile ground for gold to reach higher levels from here. However, if tariff-related inflation emerges, it will spoil the party for gold lovers.

Tip to Note: When interest rates fall, gold shines.

Other Factors

Gold has always been on the shopping list of central banks, individuals, and industries. That doesn’t leave big fund houses running gold ETFs behind. Gold ETFs, which track physical gold prices closely, are popular options too.

These global gold ETFs are seeing huge inflows. Last week, the World Gold Council reported the highest quarterly inflows (March ending) of gold-backed ETFs in three years.

The One Big Reason

Dollar, rate cuts, bond sell-offs, et cetera, are the outcome of the one event that the world is embroiled in. That’s Trump tariffs and more precisely, the US-China trade war.

Trump has warned countries not to retaliate if they wish to get rewarded. China has done the opposite. China increased duties on US goods to 84%, leading Trump to raise tariffs on Chinese imports to a whopping 145%! On Friday, China further increased duties on American goods to 125%.

Both the US and China are big economies, and a global recession looks likely if the trade war escalates, leading to investors moving into gold.

Summing Up

Trump has paused the reciprocal tariffs for 90 days. Markets know it is a temporary pause, and economies are going to suffer short-term pain before things settle out.

Currently, gold prices are firm, and selling pressure appears to have subsided for the time being.

According to analysts, gold is most certainly heading into the rally’s last leg, and an April peak is the expectation. The price of gold was anticipated to rise above $3,200 soon, which has already been tested.

Whether gold prices move higher into uncharted territory remains to be seen.

Here’s a speed-breaker to watch out for – If the US Fed doesn’t cut rates in May or in June and Powell signals a more hawkish outlook, expect some pressure in gold prices in May and June.

Also Read: Silver, the New Gold: What is behind the shiny metal’s record-breaking rally?