Why We Remain Positive on Gold

Commodity

Economic

Summary:

In addition to bullish trend signals, fundamentals remain supportive of gold with healthy demand for the precious metal from central banks. Historically, gold has provided better overall protection than global aggregate bonds during market stress periods. Our analysis shows that excluding gold in a multi-asset portfolio is sub-optimal.

After a stellar year in 2024, we expect gold to continue its strong performance in 2025 as trend signals are bullish, and fundamentals are also supportive. Although the gold price has already increased by around 10% year-to-date at the time of writing, we maintain a bullish stance over the medium-to-long term and see gold as a great source of diversification, especially against an unwanted and unexpected drift lower in USD. Here are three reasons that support our positive view on gold.

Rising demand from central banks

The US dollar's share of central banks' reserves is steadily falling while holdings in gold are rising. Geopolitics is a major factor, with setbacks in globalisation due to rising trade tensions coinciding with a build-up in gold reserves. Central banks want to diversify away from USD, but as there is no credible alternative currency, they are opting for gold. A further accumulation of gold seems likely, and investors can potentially benefit by adding gold to their portfolio.

A hedge against geopolitical uncertainty

The strong performance of gold appears to be driven by its safe haven properties during periods of market turbulence and elevated geopolitical risk. Geopolitical uncertainty has remained high in recent times due to multiple regional conflicts and tariffs imposed and announced by the Trump administration.

From our historical scenario analysis covering January 2005 to February 2025, we can see strong evidence of gold being a more effective tail risk hedge than global aggregate bonds in almost all of the historical scenarios considered.

Higher return for the same amount of risk

Adding gold to a multi asset portfolio allows investors to achieve a greater level of return for the same amount of risk. We can see in the chart that a portfolio holding only bonds and equities is sub-optimal compared to a portfolio that also holds gold. The efficient frontier constructed with a fixed 10% allocation to gold lies above the efficient frontier constructed from an allocation to solely bonds and equities. When the position in gold is unconstrained, most of the points lie above the efficient frontier for an equity-bond only portfolio.

Source: HSBC

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Devin

Central Bank

Economic

Following a series of cuts to the federal funds rate in late 2024, the Federal Reserve has since maintained a target range of 4.25% to 4.50%.

Fed officials are adopting a cautious approach amid economic uncertainties, especially the impact of recent tariffs imposed by the Trump administration. They've emphasized the need for patience, suggesting that any rate changes should await clearer economic data.

However, President Trump has been vocal in urging the Fed to lower interest rates, recently stating that he may call Chair Jerome Powell and pressure him to cut rates.

With a new president in the White House, you might wonder how much influence President Trump will have over interest rates. Here's a look at the president’s role in interest rate decisions, and what it means for your bank account when the powers that be choose to raise or lower rates.

How the Fed affects interest rates

The Federal Reserve doesn't directly control interest rates set by individual financial institutions. The Federal Open Market Committee (FOMC) — the division of the Fed responsible for setting monetary policy — controls the federal funds rate. That's the short-term interest rate that depository institutions charge each other to borrow money overnight.

When the FOMC raises or lowers its target rate, banks typically follow suit. Rising rates generally make it more expensive for consumers to borrow money, but it also means they'll earn higher rates on savings accounts, certificates of deposit (CDs), and money market accounts. Conversely, lowering rates decreases short-term interest rates on credit products and deposit accounts.

Here's a look at how rates have changed since 2022:

How Much Control Does the President Have over the Fed and Interest Rates?_1

Does the president control the Fed?

U.S. presidents don't have authority over the Fed, but they do have certain powers that can impact the future of the Fed and its decisions.

The president can appoint and fire the Federal Reserve chair

The chair of the Board of Governors of the Federal Reserve System leads the Fed in working toward its key goals, including maximum employment, stable prices, and moderate long-term interest rates. Some of the Fed chair's responsibilities include reporting to Congress on the Fed's monetary policy objectives, testifying before Congress, and meeting periodically with the Treasury Secretary.

According to the Federal Reserve Act, the chair and vice chair of the board are appointed by the president but must be confirmed by the Senate. Fed chairs and vice chairs serve four-year terms and can be reappointed by the sitting president. They can also be ousted by a sitting president, although this has never happened.

The president can nominate key officials

The president also nominates the seven members of the Board of Governors who serve on the FOMC and oversee the 12 Reserve Banks. Each member is appointed for up to 14 years, which is considered a full term, after which they can't be reappointed.

“Other than nominations, the president has zero impact on Federal Reserve interest rate policy,” said Scott Fulford, a senior economist at the Consumer Financial Protection Bureau.

The president can discuss monetary policy and voice concerns

Though presidents can't control interest rates directly, they can discuss their stance on current monetary policy and its impact on rates. But this can be a touchy topic.

“Institutionally, the Federal Reserve is very protective of its independence because that independence helps it achieve its mandate,” Fulford said. “Most presidential administrations go out of their way to avoid even publicly commenting on Fed policy.”

Even so, that hasn't stopped our current president from expressing his views on the Fed and its decisions.

Trump recently posted on social media that that Powell's termination as Fed chair "cannot come fast enough" and referred to him as "a major loser."

Experts maintain that the Fed will continue to make decisions independently. Still, this outside commentary can lead to campaign promises and political actions that impact inflation and consumer prices in other ways, according to Fulford.

“For example, this administration has focused on resolving supply chain problems and reducing monopoly rent-seeking, which reduces inflation,” Fulford said. “Congress could raise taxes or spend less, which would also affect inflation.” He added that there are many policies that affect the broader cost of borrowing as well, such as reducing late fees or closing costs.

Bottom line: The Fed is designed to operate independently of politics, but public statements by the president can shape market expectations and potentially influence the Fed's policy decisions indirectly.

Source: Yahoo Finance

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Kevin Du

Central Bank

Economic

European Central Bank policymakers are becoming increasingly confident about cutting interest rates in June as inflation continues its march lower, but there is little to no appetite for a big move, six sources told Reuters.

ECB governors gathering in Washington for the International Monetary Fund and World Bank's Spring Meetings took stock of a weakening economy in the euro zone and around the world as uncertainty from tariffs imposed by U.S. President Donald Trump puts a dampener on investment.

Data out of the euro zone also showed business growth stalling this month and pay hikes expected to ease considerably.

Most importantly for inflation, the 20% tariff rate provisionally imposed by Trump on European goods had been less severe than modelled by the ECB and the risk of retaliation by the European Union had so far been averted.

That meant that many governors were now seeing growing chances of an eighth quarter-point cut at their June 4 meeting, when the ECB will update its own economic forecasts. The ECB trimmed its benchmark rate to 2.25% earlier this month.

In line with the ECB's official line, they were keeping an open mind, however, given that the decision was still more than a month away and economic policy had become unpredictable since Donald Trump's April 2 announcement.

An ECB spokesperson declined to comment.

Trump's move shook investor confidence in the U.S. economy and even its status as the world's safe haven, causing fuel prices as well as the dollar to fall against the euro.

This resulted in growing disinflationary pressure in the euro zone, assuaging concerns about high price growth becoming entrenched among even some of the more hawkish members of the ECB's Governing Council.

The outlook further out remains foggy, however, with the prospect of a more fragmented world, cheaper imports from China and stronger domestic demand from Germany's fiscal spending plans creating contrasting forces.

For this reason, too, policymakers who spoke to Reuters saw no reason at present to consider a bigger, 50-basis-point cut, which they also believed might raise unnecessary alarm among market participants.

Source: Reuters

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Thomas

Commodity

Economic

For the past two years, West Texas Intermediate (WTI) crude oil prices appeared to have a solid floor at $64 per barrel. However, in early April, WTI broke through this support level, falling to a four-year low of $56 per barrel.

The recent decline in crude oil prices is driven by three primary factors:

1. Slowing Growth in China: Since 2005, there has been a notable relationship between Chinese economic growth and crude oil prices – when Chinese growth peaks, crude oil prices tend to peak about a year later. China's growth rate peaked in 2021, and crude prices followed suit, peaking in 2022.

2. Increased U.S. Production: U.S. crude oil production has surged to 13.5 million barrels per day, adding significant supply to the global market.

3. Improved Fuel Efficiency: Over the past two decades, vehicles have become increasingly fuel-efficient. On average, cars now use about 2% less fuel per unit of distance driven each year compared to the previous year. These factors have collectively made it challenging for crude oil prices to sustain a significant rally.

OPEC's Role and Historical Context

Over the past few years, the Organization of the Petroleum Exporting Countries (OPEC) has cut production by 3.5 million barrels per day, with the majority of these cuts coming from Saudi Arabia. If Saudi Arabia decides to increase production, WTI prices could face further downward pressure.

Historical precedents highlight the potential impact of such a move. In late 2014, when Saudi Arabia boosted production, oil prices dropped from $90 to as low as $25 per barrel. Similarly, in 1985, Saudi Arabia increased production from 6 to 10 million barrels per day, causing oil prices to fall from $32 to $12 per barrel – a 70% decline.

If Saudi Arabia opts to prioritize market share over price support, WTI prices could decline even further. Additionally, tariffs could slow global demand.

Source: CME Group

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Owen Li

China–U.S. Trade War

Key points:

Trump to celebrate first 100 days with a rally in Michigan
Official says Trump studying a travel ban on various countries
Trump expects trade deals within 90 days, analysts skeptical

President Donald Trump and his administration this week will highlight the accomplishments of his first 100 days in office, while looking toward the next 100 days with a focus on trade deals and peace talks, White House officials said.

After a pace of changes that have thrilled allies and stunned adversaries, including in social policy areas such as transgender rights, one official said Trump has "torpedoes" in store but did not explain what those were.

Trump has enacted sweeping changes on a wide range of U.S. domestic and foreign policy priorities since taking office on January 20. He has upended the world economic order with tariffs, slashed the federal government with job cuts and done away with diversity programs in the public and private sector.

He has also attacked academia, law firms and courts.

This week, Trump plans to travel to Michigan for a rally to commemorate the 100-day milestone. The White House intends to highlight his economic vision, ejection of undocumented immigrants, changes to foreign policy, and work by billionaire Elon Musk's Department of Government Efficiency to purge the federal bureaucracy and cut what it sees as waste.

Celebrating those moves will be part of a broad victory lap around Trump's second-term launch that the official, speaking on condition of anonymity, described to reporters as a conservative's fantasy.

"Every morning I wake up, it’s like living in a dreamscape," he said.

While Trump officials laud the speed and breadth of his efforts to remake American society, critics say Trump has trampled on the rights of citizens and non-citizens, alienated allies and threatened U.S. supremacy in the world.

The president has withheld funding from universities for what his administration considers tolerance of anti-Semitic behavior; cut back on transgender rights; and done away with diversity, equity and inclusion (DEI) programs in the federal government and with federal contractors. This has had a broad knock-on effect throughout U.S. society.

The official said there is more to come, with lots of “torpedoes under the water."

That includes more executive action, a hallmark of Trump's first 100 days, which the official said would continue like a "snowball rolling downhill." He said the administration was still working on a travel ban for citizens from multiple countries.

Courts have stymied some of Trump's actions, drawing scorn from his allies and White House rebukes that those judges are thwarting the will of the head of the executive branch and the people who elected him.

While Trump will continue to wage war with the courts and a government bureaucracy that his team views as too bloated and out of line with his world view, another official said he would put more focus in his next 100 days on trade deals and peace talks.

The president launched an all-out trade war on numerous countries this year before putting reciprocal tariffs largely on hold to allow for negotiations with individual nations. His administration hopes to secure agreements within 90 days.

Experts say that is extremely unlikely, noting that Trump has not yet secured a single deal. His rhetoric about talks, particularly with China, has often been at odds with what the other country says is true.

The president will take an extended trip abroad next month, visiting Saudi Arabia, Qatar and the United Arab Emirates, and continue to push for peace in Russia's war with Ukraine.

Trump had promised to solve that conflict on "Day One," but peace has been elusive. The president conceded on Saturday that Russian President Vladimir Putin may not want to stop the war.

Source: Reuters

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Manuel

Economic

Bond

Spiking trade uncertainty is compounding rising debt and sluggish growth problems facing emerging markets and developing countries, but cutting their own tariffs could provide a big boost, said Indermit Gill, the World Bank's chief economist.

Gill said global economists were rapidly lowering their growth forecasts for advanced economies and somewhat less so for developing countries, at least for now, in the wake of a tsunami of tariffs announced by U.S. President Donald Trump.

The International Monetary Fund and World Bank spring meetings this week in Washington have been dominated by worries about the economic fallout from century-high U.S. tariffs - and retaliatory ones announced by China, the European Union, Canada and others.

The IMF on Tuesday slashed its economic forecasts for the U.S., China and most countries and warned that more trade strife would further slow growth. It forecast global growth of 2.8% for 2025, half a percentage point lower than its January forecast.

The World Bank won't issue its own twice-yearly forecast until June, but Gill said a consensus of global economists showed sizeable downgrades in forecasts for growth and trade. Uncertainty indices, which were already running far higher than a decade ago, also spiked after Trump's April 2 tariff moves.

Compared to earlier shocks, including the 2008-2009 global financial crisis and the COVID-19 pandemic, the current shock is the result of government policy, which meant it could also be reversed, Gill said in an interview with Reuters on Thursday.

He said the current crisis would further depress growth in emerging markets, after steady declines from levels around 6% two decades ago, with global trade now slated to grow by just 1.5% - well below the 8% growth seen in the 2000s.

"So it's a sudden slowdown on top of a situation that wasn't particularly good," he said, noting that portfolio flows to emerging markets and foreign direct investment (FDI) were also declining, much as they did during earlier crises.

"FDI was 5% of GDP in emerging markets during good times. Now it's actually 1% and so both portfolio flows and FDI flows are down overall," he said.

NEGOTIATE TRADE DEALS

High debt levels mean that half of some 150 developing countries and emerging markets are either unable to make debt service payments or at risk of getting there, a rate that was double the level seen in 2024, and could grow further if the global economy slowed, Gill said.

"If global growth slows down, trade slows down, more countries and interest rates stay high, then you are going to get many of these countries getting into debt distress, including some that are commodity exporters," he said.

Net interest payments as a share of gross domestic product - a measure of how much countries spend to service their debts - now stand at 12% for emerging markets, compared to 7% in 2014, returning to levels last seen in the 1990s. The rates are even higher for poor countries, where debt servicing costs eat up 20% of GDP now, compared to 10% a decade ago, he said.

That means countries are spending less on education, health care and other programs that could boost development, he said.

Interest rates are also slated to stay high, given rising inflation expectations, which means countries' debt could rise further if they needed to roll over existing debt, Gill said.

He said his advice to developing countries was to quickly and urgently negotiate agreements with the U.S. to lower their own tariff rates and avert high U.S. tariffs, and to extend lower tariff rates to other countries.

Doing so now made sense, with U.S. pressure potentially easing domestic resistance. World Bank modeling showed that such moves could boost growth substantially, Gill said.

Source: Reuters

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Manuel

Political

Economic

China–U.S. Trade War

President Donald Trump’s administration has drafted a framework to handle negotiations with trading partners rushing to secure deals to avert tariff hikes, according to people familiar with the matter.

Under the blueprint, US negotiators will use a template that lays out common areas of concern to help guide the discussions, the people said, speaking on condition of anonymity to detail the plan. Among those categories are tariffs, non-tariff barriers, digital trade, economic security and commercial concerns.

The talks would see the US host negotiators from a select number of countries each week, in a bid to manage the flood of foreign governments and trading blocs seeking tariff relief ahead of a mid-July deadline. That framework could change, according to the people familiar, and officials could raise additional issues specific to certain countries.

The administration’s plans were first reported Friday by the Wall Street Journal. Under the structure, the US will hold discussions with about 18 countries — six every week — over three weeks, in a rotation until they hit the deadline, the Journal reported.

The Office of the US Trade Representative, in a statement, said it is “working under an organized and rigorous framework and moving ahead quickly with willing trading partners.”

“President Trump and USTR have made U.S. objectives clear and our trading partners have a very good sense of what they can each individually offer,” the statement added. “This is why USTR is receiving dozens of meaningful and substantial proposals from countries in pursuit of fair and reciprocal trade with the United States.”

The effort offers to provide more clarity for a process that has unnerved equity and bond markets and left major US trading partners struggling to determine how to carry out talks with the US and what Trump is seeking.

Trump earlier this month announced sharp tariff increases on about 60 countries but then quickly paused those measures for three months to allow trading partners to negotiate deals, keeping in place a baseline 10% rate during the negotiating period. That has set off a flurry of visits from foreign delegations eager to strike a deal.

A South Korean delegation held talks earlier this week and Trump told reporters Friday that an agreement with Japan is “very close.”