In the world of finance, few instruments have witnessed such a cataclysmic shift as gold has recentlyOn an ordinary Wednesday, the price of spot gold hovered around an impressive $2933.72 per ounce, following a substantial increase of over 1% the previous trading dayThis fluctuation signifies not just a momentary blip but rather an ongoing dramatic upheaval in thegold market, marked as the most intense wave of volatility seen since the second half of 2024. The foundations of this wave are deeply intertwined with the very fabric of the global economic system, revealing fundamental contradictions that are finally coming to a head.

Earlier in the week, spot gold prices surged by 1.2%, settling at $2932.79 per ounce, almost touching the historic peak of $2942.70 achieved in December 2024. This surge was ignited by an unexpected tariff policy announcement made by the U.S. government on January 20. The government decided to impose a hefty 25% and 10% duty on imported steel and aluminum products, respectively, while simultaneously activating a mechanism for "comprehensive reciprocal tariffs"—meaning that any nation that imposed tariffs on U.S. goods would face similar levies in return

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Such a move disrupted the already precarious balance of international trade architecture.

Statistics reveal that during 2024, the total value of steel imports into the United States reached a staggering $128 billion, encompassing 58 nations worldwideThe European Commission wasted no time in responding to the new tariffs, announcing that it would levy tariffs on U.S. goods worth $32 billion, which included agricultural products, auto parts, and industrial equipmentThis “eye for an eye” approach to trade is shaping a new global supply chain paradigmA recent World Bank report highlights that if the tariff war escalates further, global GDP growth could experience a slowdown of 0.8 percentage points by 2025, with international trade volumes contracting by 3.2%.

The pervasive uncertainty of such policies has directly impacted investors' risk appetite within the financial marketsFollowing the tariff announcement, the S&P 500 index dropped 1.8% in a single day, while the Dow Jones Industrial Average saw a dramatic decline of 450 pointsInvestors, seeking a safe haven amidst increasing volatility, flooded into the gold market, resulting in a surge in holdings of the world’s largest gold ETF—SPDR Gold TrustIn the past two weeks alone, its holdings increased by 37 tons, pushing total holdings past the 1,200-ton mark, a high not seen since March 2022.

Beyond the short-term flight to safety, the gold market is undergoing a significant structural transformation—largely driven by the unprecedented demand from global central banks

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Recent data from the International Monetary Fund reveals that central bank gold purchases reached a record-breaking 1,250 tons in 2024, a staggering 35% increase from the previous yearThe Central Bank of Russia has raised its gold holdings in foreign reserves to 28%, while India’s central bank has been quietly accumulating gold through its sovereign wealth fund, surpassing 800 tons in holdings.

This trend of "de-dollarization" emerges as a response to the inevitability of a multipolar world economyThe U.S. dollar's share in global reserve currencies has plummeted from 73% in 2001 to 58% in 2024. Consequently, the strategic value of gold, which is often viewed as a "non-credit currency," is being rediscoveredA report from the World Gold Council anticipates that demand from central banks in emerging markets will remain robust, predicting that total gold purchases could exceed 1,500 tons in 2025.

As market participants keep a keen eye on the Federal Reserve’s January meeting minutes, it is important to note that the current federal funds rate is maintained within the range of 5.25% to 5.50%. However, diverging economic data has amplified uncertainty surrounding anticipated policy shiftsFourth-quarter GDP growth unexpectedly decelerated to 1.8%, while the core Personal Consumption Expenditures (PCE) price index rose 3.5% year-on-year, falling short of market expectationsThis "cooling economy amid persistent inflation" raises concerns about the Fed getting trapped in a "stagflation" scenario.

Futures market indicators show that expectations for fed rate cuts in 2025 have risen significantly to 75 basis points, an increase of 40 basis points since early January

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However, a notable divide exists within the Federal Reserve: hawkish member Lorie Logan, president of the Dallas Fed, has stressed the "fragility of the inflation decline," while dovish member Susan Collins, president of the Boston Fed, has called for "flexibility in policy." The representation of this division in the meeting minutes will have a direct impact on gold prices in the short term.

Gold's robust performance is also contributing to a re-evaluation of the entire precious metals sectorSpot silver prices have surged past $32.84 per ounce, creating a new high since 2021, driven by a synergy of industrial demand and safe-haven buyingPlatinum prices reached as high as $983.75 per ounce while palladium jumped to $986.50 per ounce, both reflecting increases exceeding 20%. This pattern of widespread gains encapsulates the growing strategic reserve needs in the global manufacturing sector for essential metals.

The automotive industry's transformation has become a central driving force for the palladium marketIn 2024, global penetration of new energy vehicles exceeded 35%, yet traditional internal combustion engine vehicles still command a 60% market shareDue to palladium's irreplaceable role in catalytic converters, global palladium inventories have plunged to a five-year lowAs the largest palladium producer globally, any adjustments to Russia's export policy could prompt drastic price fluctuations.

We find ourselves at a historical crossroads in the gold marketLong-term considerations such as the global debt exceeding $300 trillion, reshaping of supply chains driven by climate change, and the transformative revolution brought by artificial intelligence, all reinforce the strategic allocation value of gold

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