Source: Barron's Chinese
It's all about Trump's trade war.
Concerns about tariffs have unnerved many investors, but gold bulls are enjoying the uncertainty created by President Trump's tariff threats.
Gold has risen about 8.5% this year and is currently trading near $2,900 an ounce. In 2024, gold prices rose nearly 30%.
Gold mining stocks have performed even better than gold. The VanEck Gold Miners ETF (GDX), which includes gold mining stocks such as Newmont (NEM), Agnico Eagle Mines (AEM) and Barrick Gold (GOLD), has risen more than 18% so far this year.
After a sharp rise in 2024, gold has seen a considerable increase this year. It is prudent to be wary of this, but it is worth noting that if gold prices continue to rise, gold mining stocks are likely to have more room to rise.
This round of gold's rise has been driven by buying by central banks and retail investors. Data released late last year by the World Gold Council showed that Poland, Turkey, India and China have been big buyers of gold.
“Emerging market central banks are active buyers of gold and they will continue to buy,” Joe Cavatoni, senior market strategist at the World Gold Council, told Barron’s.
Gold demand hit a quarterly high in the fourth quarter of last year, and the outlook for demand through 2025 is very good, the World Gold Council said in a report released Wednesday.
“Central banks and ETF investors will continue to drive demand growth as economic uncertainty supports gold’s role as a risk hedge,” the World Gold Council said in the report.
It’s all about Trump’s trade war. There’s something unusual about gold’s continued rise because it’s happening at a time when the dollar is also strengthening.
Frank Watson, market analyst at Kinesis Money, noted that a rising dollar "is usually a negative factor for gold priced in dollars," however, "the U.S. tariff policy brings a lot of uncertainty to the economy and inflation, so gold's appeal as a safe haven remains undiminished." In other words, the impact of Trump's trade policy may outweigh the impact of a strong dollar on gold.
Silver prices have also been rising, up about 14% so far this year. Alex Ebkarian, chief operating officer of Allegiance Gold, a physical precious metals trader, pointed out in an email to Barron's that gold and silver prices may continue to rise due to uncertainties in the market.
Gold and silver price trends from February 2024 to February 2025
Blue: Silver
Black: Gold
Note: Data as of 20:29 EST on February 5, 2025;Source: FactSet
“In a high-risk environment, the appeal of physical gold and silver becomes more prominent as they eliminate counterparty risk and are a reliable store of value,” Ebkarian said. He also pointed out that JPMorgan Chase’s recent plan to deliver about $4 billion worth of gold bars “is clearly a hedge against possible trade disruptions.”
As for how much higher gold prices can go, Michael Arone, chief investment strategist at SPDR Business at State Street, believes that due to the global situation, gold prices may exceed $3,000 an ounce at some point this year.
"Geopolitical risks and structural shifts in monetary and fiscal policies will also boost gold's prospects. Central banks will continue to buy gold this year, and gold prices will continue to be supported. All of this may eventually release some pent-up investment demand."
This is also good news for gold mining stocks. Although gold mining stocks have risen sharply this year, valuations are still reasonable. The VanEck Gold Miners ETF has a 2025 expected price-to-earnings ratio of just 12 times, which is lower than the five-year average of 15 times. The ETF's price-to-earnings ratio is also about 45% lower than the S&P 500, and its price-to-earnings ratio is usually 20% lower than the broader market.
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