Gold's enduring appeal in a fractured world

Safe spaces in financial markets have been hard to unearth as investors grapple with the risk of a protracted global trade conflict.

- Tan Min Lan

In recent weeks, the value of US Treasuries and the dollar, traditionally the world's premier refuges, have come under pressure from the Trump administration's frequent shifts of tariffs, perceived threats to the Federal Reserve's independence, and mounting worries over US fiscal sustainability.

Yet, as traditional "safe-haven" assets wobble, gold has once again demonstrated its worth. The precious metal is trading close to 8 per cent higher following President Donald Trump's April 2 tariff announcement, which triggered the sharpest bout of market volatility since the onset of the Covid-19 pandemic in early 2020.

This surge is the latest leg of gold's impressive rally. Since the start of 2024, the price of gold has gone up more than 60 per cent, its swiftest climb since the 2008 global financial crisis. In dollar terms, this marks gold's best run in modern history. Even more striking, this performance has unfolded against the backdrop of elevated US interest rates—which has raised the opportunity cost of holding zero-yielding assets like gold.

After such a rapid run, investors understandably fear that a retreat may be imminent. Indeed, gold's high volatility has historically seen it endure its share of prolonged declines, notably through much of the 1980s and 1990s, when elevated real interest rates posed a powerful headwind.

That said, in our view, a recurrence of those conditions appears improbable at this stage. Rather, the rationale for positioning gold as a cornerstone in diversified portfolios is now more compelling than ever.

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