Ankara: President Donald Trump's protectionist trade policies have led to a rise in gold prices due to ongoing uncertainties and tensions, breaking the traditional negative correlation between gold and US real interest rates, an expert informed Anadolu.
According to Anadolu Agency, Hande Sekerci, chief economist at Trkiye-based IS Portfoy, explained that ordinarily, gold prices move inversely against US real interest rates. However, gold has been on an upward trajectory, reaching $3,500 per ounce on Tuesday. Trump's second term has been marked by uncertainties stemming from immigration restrictions, tariffs, and tax cuts for the wealthy, which have dampened market risk appetite. Concurrently, gold has continued to break records, driven by the safe-haven demand from investors and central banks.
Sekerci elaborated that the record-breaking gold prices should typically move inversely to the US real interest rate. When real interest rates are expected to fall, gold usually rises, and vice versa. However, gold has defied this trend, gaining support from persistent uncertainties. Geopolitical risks, such as the war in Ukraine and tensions in the Middle East, have also contributed to gold's rise. Sekerci noted that while gold's industrial use is not as significant as other metals, its demand in tech sectors and jewelry, particularly from India, China, and the Middle East, along with central banks, has significantly increased.
She emphasized that the upward trend in gold prices might persist due to ongoing risks and uncertainties, creating its own demand as institutions adjust their price estimates. Sekerci also pointed out that while the Federal Reserve seems reluctant to cut rates, the ongoing developments indicate that the gold's upward trend may continue.
Sekerci highlighted concerns about the US economic slowdown following Trump's tariff announcements and the Federal Reserve's stance on policy easing. She noted that while bond yields initially fell, some recovery has been observed with changes to trade policies, including Trump's 90-day tariff pause. The US holds approximately $8 to $8.5 trillion in nominal bonds, with China holding around $800 billion. Sekerci explained that while Japan remains the largest bondholder, China's actions in disposing of US bonds have not significantly impacted bond interest rates.
She concluded that the long-term side of the US bond market yield curve appears safer, while short-term risks are more pronounced. Although US inflation has moderated slightly, the Federal Reserve's response remains uncertain. This situation could lead to increased short-term volatility, which may persist until tariff uncertainties are resolved and inflation trends become clearer.