Gold topped $3,400 per ounce for the first time ever last week.
President Donald Trump’s tariffs roiled markets and soured consumer attitudes in recent weeks, but the uncertainty helped propel a different asset viewed as a safe haven: gold.
The price of gold topped $3,400 per ounce for the first time ever on Monday, and the precious metal continued to hover above that mark in early trading on Tuesday.
Gold prices have soared 31% so far this year, while the S&P 500 has plummeted 12%. Over that period, the Dow Jones Industrial Average has dropped 10% and the tech-heavy Nasdaq has sunk 16%.
The rush toward gold makes financial sense, experts said. The asset offers investors a hedge against uncertain stock performance, since gold prices often display a degree of independence from movements in equities markets. A selloff in bond markets and a devaluation of the U.S. dollar have unsettled alternative assets typically viewed as safe-haven investments.
However, gold prices carry volatility of their own, especially when buyers enter the market at a high point, risking losses instead of providing a security blanket.
“Investors need to be careful,” Campbell Harvey, a professor at Duke’s Fuqua School of Business who studies commodity prices, told ABC News.
“At a time of heightened uncertainty, people look toward a safe haven – and gold is a perceived safe haven. But most people don’t realize that gold is volatile,” Harvey added.
The run-up in gold prices comes amid a market slump set off by an escalating global trade war.
“Right now, it’s a very anxious marketplace,” Jim Wyckoff, senior market analyst at Kitco Metals, told ABC News. “That’s been a detriment for stock-market bulls and a boom for gold-market bulls.”
The flight to gold in moments of market crisis draws on decades of evidence, according to an analysis co-authored by Harvey in 2020. The price of gold moved higher during seven of the last nine major stock market selloffs stretching back to the late 1980s, researchers found.
“It’s a good track record, but it’s not a sure thing,” Harvey said. “Even though it went up seven out of nine of these drawdown periods, that doesn’t mean it will be seven out of nine in the next nine drawdowns.”
In March, Paris-based financial firm BNP Paribas raised its forecast for gold prices, predicting the precious metal would exceed $3,100 an ounce. The company attributed the rosy outlook to economic uncertainty incited by Trump, but it warned such gains would likely fizzle out by the second half of this year.
“The gold market will price in or normalize Trump-driven trade risks, as it typically does with geopolitical risk,” BNP Paribas said in a report shared with ABC News. “Thus, if there is no ongoing escalation in trade tensions, gold prices will, in our view, struggle to maintain further upside momentum.”
Some experts who spoke to ABC News acknowledged the current price boom may eventually lose steam, but they still encouraged investors to add the precious metal to their portfolios as a means of offsetting the heightened risk of stocks.
“Gold offers diversification,” Trevor Yates, an analyst at investment firm Global X, told ABC News. “We see gold warranting a place in the portfolio.”
Investors who add gold for the sake of diversifying their portfolio, however, may want to add other assets alongside it, such as Treasury bonds or real estate, Harvey said.
“There are other safe assets besides gold,” Harvey said. “Don’t put all of your eggs in one basket.”
Source: abcNEWS
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