By Ahmad Assiri, Research Strategist at Pepperstone
If you step back and look at what is really driving gold, it becomes clear that it is more than a reaction to a single catalyst or isolated event. Rather, it about a broader market reassessment of how different asset classes are being priced and positioned. The geopolitical landscape has been particularly telling lately. Greenland tensions was in my view a turning point and more about influence and long term access, even if that comes at the expense of closest allies. There has been a clear move toward diversification away from US reliance, reflected in the new large trade deal between the European Union and India, alongside the recent reengagement in economic dialogue between the UK and China. This trend is increasingly evident among middle powers seeking to diversify their trade relationships and reduce dependence on a single political center that is perceived to have recently crossed established boundaries.
This context matters for gold because it benefits from a decline in global cohesion. When trade alliances and political priorities begin to shift, capital tends to seek assets that sit outside the political influence. As such gold comes to the forefront both as a fear driven safe haven and as a hedging tool in a world that is less predictable and more fragmented. It has also, for those who are quick to adapt, been an investment appreciation asset that has recently outperformed all asset classes.
The currency backdrop reinforces this picture as the US dollar is trading near its lowest levels in years, around levels last seen in early 2022. This move cannot be explained solely by interest rate differentials but also reflects a confidence issue tied to recent actions and signals from the US administration. Large fiscal deficits, rising debt servicing costs and a political acceptance of currency weakness, as suggested by recent comments, have all fueled a narrative of value erosion. As the perceived sanctity of the dollar begins to fade in the eyes of many, gold naturally emerges as the more qualified alternative.
From a price action perspective, the message has been unambiguous, as gold has gained more than 20% since the start of the month, marking its strongest monthly performance in decades. Moves of this magnitude are rare and are certainly not the result of short term speculation alone. They point instead to a genuine reallocation of capital, central bank demand remains a persistent and powerful support in the background, most notably from the Polish central bank of late, while investors appear increasingly willing to pay a premium for monetary protection. In this sense, gold’s rally can be seen as a clear expression of market discomfort with current US policies which have recently appeared poorly calibrated, whether in fiscal management, trade strategy or global leadership.
Looking ahead, it would be unrealistic to expect a straight upward path without pauses, as such moves naturally encourage profit-taking and periods of sidelining. After a rally of this strength, phases of consolidation or price corrections are normal and are unlikely to be deep. However, unless there is a tangible shift toward geopolitical de-escalation and a notably stronger dollar, it is difficult to argue that the gold narrative has lost momentum. For now, the yellow metal continues to perform its role very well with a clear bias toward further upside in the months ahead.