Gold prices have hit all-time highs today and reached $2,870 an ounce for the first time in history, as more and more investors are moving away from riskier assets to safe-haven ones in the context of stricter global trade policies.
The soaring of the precious metal’s value is accompanied by the downfall of global financial markets after the bitter introduction of the U.S. tariffs.
The extraordinary rise in the gold market has been made possible by a combination of some essential factors that include but are not limited to excessive central bank buying, ongoing inflation worries, and economic decoupling fears. These elements have thus given birth to a situation where the investors are fleeing from the volatile markets increasingly.
The act of charging extra trade duties by the White House contributed to the uphill climb in the demand for safe-haven assets. The swift decline of European equities to their lowest level in two months has seen cash swiftly exit the volatile equity market for gold, which has become the dominant asset in a new investment basket in the short term.
Industry experts say that this large-scale flight to safety indicates growing anxiety about slow or no further progress in the economy. The STOXX 600 has lost 1.7% following the announcement of the new tariff on all imports to the United States, as the market participants are trying to assess the likely impact of the new trade scenario.
The trade war announced by the US has badly affected Germany, whose DAX index has experienced as high as a 2.4% fall, making it the most affected stock market by the new situation in Europe. This demonstrates the degree of sensitivity that export-driven economies have to abrupt changes in global trade structures in a very dramatic manner.
Wall Street was not spared by the crisis, with the futures contracts of the main indexes showing a steep drop in prices. The S&P 500 futures have plunged by 3.2%, while Nasdaq 100 futures have slumped by an even heavier 3.5%, indicating the probable technology stocks’ negative impact on the pessimism of the financiers.
Financial experts are now saying that the market conditions of the current day may be nowhere near as bad as they are just now. The matter of the utmost importance at the moment is how quickly the conflicts will move to the real economy and for some, that might be the turning point in determining market sentiment.
The European Central Bank has found itself in a tricky position where it must confront the problem of inflation, which, in case, may be triggered by tariffs, and at the same time deal with the issue of the necessity of the economic growth stimulation through the course of the monetary policy. The gamblers have raised their stakes on the ECB’s interest rate cut even if the trade conflict imposes inflationary threats.
The major European banks’ stocks are very sensitive and their exposure to the changes in the economic viewpoint have led to a 3.1% decrease in the sector. Indices tracking bank stocks in Italy and Spain were also down by about 1.5% each due to widespread concerns about the financial sector’s weaknesses.
The Europeans who were so happy at the beginning of this year that their stocks were outperforming their US counterparts have come down to earth a lot lately. Specifically, the trend was due to the German fiscal policy that brought about an increment in government spending, the slashing of the bank rates, and the very underestimation of stock valuations.
The Stoxx Europe 600 Index had been leading the S&P 500 by a huge gap of almost 15 percentage points stated in dollar terms at the end of the first quarter. But the mood among stock analysts is downbeat as some are expecting the European indices to fall even more in the next few months.
The investment experts here recommend that the right behavior in the current phase would probably be to sit tight on the bench until the markets calm down to a certain extent. The conversation has moved to find such companies that can lower their tariffs or shift the raised costs to the consumers to defend their margins of profit.
While there are still no signs of the situation improving in the short term, others are just as vocal in their opinion of the European stock markets falling even further. There would be more escalations before any deals are made, thus a market recovery in a short time seems to be a bit distant without any evident positive changes on the horizon.
The car industry not only suffered the most as the 25% tariff on imported cars from the United States is effective now, but it also feels the most of the impact. The Stoxx Auto & Parts Index has, for instance, plunged by as much as 13% from its previous high, thus, showing worries about heightened expenses and crippled supply chains.
Even the beverage industries to some extent have been affected by the problems created first by the 25% tariff on wines and spirits imported from the European Union. Similarly, the 25% tariff is affecting the aluminum and steel industries badly, while the pharmaceutical industry, on the other hand, is feeling the negative impacts of the tariffs.
The European Commission considers the new tariffs introduced to be a severe blow to the global economy. The Chinese authorities, on the other hand, have pledged to take firm measures against the extensive American tariffs and have called upon the leaders to find a solution to these unilateral actions.
Given the changing state of affairs, financial market participants are eagerly observing the responses of European and Chinese leaders. The possibility of retaliatory actions may further exacerbate the situation, and consequently, the impact on global trade and economic growth would be deeper.
At present, gold is a positive sign amidst the volatility of the financial sector, and it is likely that its upward trend will continue as long as there are geopolitical and economic uncertainties.
A safe harbor that has traditionally been increasingly sought by investors to dampen the volatility of their portfolios has been the main reason for pushing the price of the metal to new record levels.