Trade War Sends Gold Price Above $3,000

The price of gold exceeded $3,000 for the first time in history on the 14th March 2025, helped in the short term by an escalating trade war, geopolitical tensions, and renewed fears of a recession.

Breaking through the psychologically important $3,000 level shows that gold continues to be an extremely important financial asset in uncertain times. Over the past quarter century, gold has appreciated more than 10 times, outperforming the performance of the S&P 500 US stock index.

Gold has typically crossed significant milestones during volatile times. The $1,000 level was reached after the 2008 financial crisis, and the $2,000 level was surpassed during the coronavirus crisis. The current rise can be attributed to central banks buying gold in a geopolitically tense environment as a neutral reserve asset that is not exposed to sanctions from other countries (especially the US).

5 main reasons why the price of gold has risen 40% in a year

While Western investors were relatively indifferent to gold at the beginning of the rapid price increase (first half of 2024), European and US investors have also become more active over the past six months. This is well illustrated by the inflow into gold-backed exchange-traded funds (see the chart below).

In February, it reached its highest level in recent years, partly due to the fact that gold is moving in large quantities from London to New York due to the fear of tariffs. This is one of the reasons that has led gold to the 3,000 mark.

Gold Price Has Risen 14% This Year

Last December there were speculations that the price of gold could reach the $2,900-$3,000 range by the end of the first quarter or in the spring. Gold exceeded the $2,900 level on February 10th, and now (March 14th) the price has risen to $3,004.9 per ounce. Since then, the price has come down slightly.

The fact that gold crossed this milestone so quickly comes as a bit of a surprise to me as well. I expected the correction that began in late February, during which prices fell by about 4 percent, to last a little longer. But as they say, in a rising market, prices tend to surprise on the upside, while in a falling market, they do the opposite. The price of gold has been clearly in an uptrend for two years now.

The price of gold has already risen 14 percent in the new year. Last year, gold rose 27 percent in dollar terms year-on-year.

Trade War Escalation

In the short term, several factors have supported gold. The biggest influence here has been the trade war started by US President Donald Trump, which has escalated in recent weeks.

Namely, there are fears that the tariff war could become a trigger that will ultimately lead to a recession in the US. This, in turn, has increased the likelihood for traders that the Federal Reserve will cut interest rates faster than expected this year. Lower interest rates usually have a positive effect on the price of gold.

New tariffs against Mexico, Canada, and China went into effect in early March

This was followed by countermeasures – Canada and China imposed their own tariffs. The European Union also imposed new tariffs on the US.

Tariffs are like a double-edged sword – on the one hand they squeeze the economy, on the other they create inflation. If both edges start to hurt, the Federal Reserve will find itself in a difficult position, because lowering interest rates will boost inflation. But if interest rates are not lowered, the recession could become uncomfortably deep. This could contribute to a stagflationary environment, where the economy does not grow but inflation remains high.

Europe’s New Defence Plan Gave a Boost to Gold

The war of words between Trump and the Ukrainian president at the White House on February 28 probably played a role in gold’s March rise. European leaders reacted quickly, believing that they could no longer count on US military assistance. The European Commission came up with a plan to invest 800 billion euros in defence.

But where does this money come from? Still from the growth of national debts and therefore ultimately from the money printing machine. However, the higher the budget deficits, the more attractive gold is for investors. The budgets of European countries are already under severe pressure, and the new debt feast will make the situation even worse.

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European bond markets reacted to the decision with a sharp decline. On March 5, German 10-year government bond prices fell at the fastest pace since the fall of the Berlin Wall. When bond prices fall, the interest that the country has to pay on new loans increases. Investors are voting with their feet, and increasing debt burdens is a step closer to a sovereign debt crisis.

What Happens Next?

Last May, predictions of a medium-term (6-24 months) price target for gold of $2,800-3,000 per ounce was estimated. We have now surpassed these levels and it is extremely difficult to make new forecasts at this time.

On the one hand, gold has risen in price a lot in the past few years – as recently as November 2022, an ounce of gold cost $1,616. On the other hand, there have also been extremely good reasons for the price increase, which have not changed over the past few years. Rather, the reasons for the increase have increased.

It is very difficult to make a medium-term forecast, but in the long term, I estimate that gold could move to $6,000-7,000 by 2030. The price increase this decade will probably be similar to the period 2001-2011, when the price of gold increased about sevenfold. If we consider the 2015 price base ($1,060) as the starting point of the cycle, then an equivalent increase gives us these price targets.

This is supported by an inflationary environment, insane levels of public debt, budget deficits, and deepening geopolitical polarisation.