The precious metals market continued its robust upward trend, with gold stabilizing above $5,070 on Tuesday following a brief retreat after breaching the historic high of $5,100. Silver, meanwhile, returned to the $110 mark after hitting a record peak of $117. This rally, now in its seventh consecutive trading day, is being fueled by a combination of a weaker US dollar, geopolitical risks, and investors fleeing sovereign bonds in a "currency debasement trade." Tariff threats from the Trump administration have intensified market risk aversion. According to reports, Trump stated that, given South Korea has not yet passed what he called a "historic trade deal," he has decided to increase tariffs on South Korean automobiles, timber, pharmaceutical products, and other reciprocal items from 15% to 25%. This follows previous threats of 100% tariffs on Canada. Such policy uncertainties are driving investors towards traditional safe-haven assets like gold. A weakening US dollar provided additional support for gold prices. The US Dollar Index fell to a near four-year low, pressured by market speculation that the US might assist Japan in supporting the yen, coupled with risks of a US government shutdown and the unpredictability of Trump's policies. A softer dollar reduces the cost of dollar-denominated gold for overseas buyers. The Federal Reserve is widely expected to hold interest rates steady at its policy meeting this week. However, market focus has shifted to Trump's criminal investigation into Fed Chair Powell, and attempts to oust Fed Governor Lisa Cook. Trump has indicated he has completed interviews for the next Fed Chair, and a more dovish candidate could heighten expectations for further rate cuts this year, which would benefit non-yielding gold. Precious metals demonstrated broad strength on Tuesday. Spot gold rose 1.26% to $5,071.41 per ounce, after touching an all-time high of $5,110.50 the previous day. US gold futures for February delivery gained 0.4% to $5,063.0. Gold has doubled in price over the past two years and is up 17% year-to-date. Silver's performance was even more striking, rebounding above $110 per ounce on Tuesday. This followed a session where it almost erased all gains after setting a new record high of $117.69. The white metal has surged an impressive 55% so far this year. Platinum fell 2.5% to $2,688.12 per ounce after reaching a record $2,918.80 in the previous session, while palladium edged up 0.1% to $1,980.50. The "currency debasement trade" is dominating market dynamics. Investors are aggressively exiting sovereign currencies and government bonds, flocking instead to gold. Massive selling in the Japanese government bond market serves as the latest example of investors rejecting large-scale fiscal spending. Gold's dramatic ascent underscores its historical role as a barometer of market fear. After delivering its best annual performance since 1979 in 2023, gold prices have continued their powerful advance this year. Recent actions by the Trump administration—threatening to annex Greenland, potential military intervention in Venezuela, and attacks on the Federal Reserve's independence—have further rattled markets. Speculative positioning data highlights gold's appeal, with options traders preparing for further gains in the heated market. Implied volatility for Comex futures climbed to its highest level since the peak of the COVID-19 pandemic in March 2020, while volatility for the world's largest gold ETF, State Street's SPDR Gold Shares, also broke higher. A buy-the-dip mentality is supporting the market outlook. Fawad Razaqzada, an analyst at City Index Ltd, noted, "Traders are buying the dips rather than shorting the rallies. As long as this mentality persists, it's difficult to argue against higher prices in the short term, even if there is a near-term disconnect between fundamentals and reality." Few are willing to go against the trend in such a fervent market. The Fed is expected to keep rates unchanged at its monetary policy meeting starting Tuesday, but the meeting is overshadowed by the Trump administration's criminal probe into Powell, attempts to remove Governor Cook, and the impending nomination of a successor for Powell in May. The soaring gold price is also driving mining sector consolidation. Zijin Mining is set to acquire Canada's Allied Gold for approximately C$5.5 billion ($4.02 billion) in cash, as the Chinese miner accelerates its global expansion against the backdrop of record-high gold prices. The unprecedented gold rally is boosting miners' profit margins and cash flow, fueling industry consolidation.
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