Gold Is Caught In A Liquidity Squeeze But Can Still Get Back Above $3,000

(April 7, 2025 - Neils Christensen, Kitco News)

(Kitco News) - Continued selling pressure in U.S. equity markets is also weighing on gold as traders sell the yellow metal to raise capital. While gold prices can still move lower, one analyst says the precious metal remains an important safe-haven asset.

On Friday, Suki Cooper, a Precious Metals Analyst at Standard Chartered Bank, published her latest outlook on gold, saying that she expects prices to average around $3,300 an ounce in the second quarter, up from the previous forecast of $2,900 an ounce.

“Gold volatility has risen, caught between safe-haven demand and the need to meet margin calls as a liquid asset, amid a risk-off environment following the announcement of harsher-than-expected U.S. tariffs,” she said.

Although gold prices have dropped below $3,000 an ounce, they have significantly outperformed the S&P 500 and other commodities like copper, oil, and silver. Spot gold last traded at $2,966 an ounce, down more than 2% on the day.

Gold prices are down 6% from last week’s all-time highs following Trump’s tariff announcement. At the same time, the S&P 500 last traded at 4,987 points, down 12% from last week.

“It is not unusual for gold to sell off amid risk-off events, and subsequently bounce back, but the macro backdrop remains favorable for gold and the price action has been relatively resilient,” Cooper said in the report.

Looking ahead, Cooper said that in the current environment, gold remains an attractive investment as recession risks continue to rise. At the same time, economists note that Trump’s global import tariffs could drive inflation higher, creating a stagflationary environment.

“A recessionary environment is broadly gold-positive, and on an annualised basis, gold on average has gained 15% during the last seven U.S. recessions,” said Cooper. “There is less data available for periods of stagflation, but gold rose by 61% between November 1973 and March 1975, fell by 12% during January-July 1980 and gained 5% during July 1981-November 1982.”

Cooper said that she is bullish on gold as she expects weak economic growth to prompt the Federal Reserve to cut interest rates even as inflation fears remain elevated. However, she also notes that Federal Reserve easing could be less than expected as markets are now pricing in five rate cuts this year.

“Our FX strategists believe that the Fed does not want to cut aggressively but will do so if hard data gets bad enough, even if inflation risks are to the upside due to tariffs,” she said. “They expect the Fed to cut once in both Q2 and Q3, as compared to the almost four 25bps cuts now priced in by Fed funds futures markets.”

On Friday, in the midst of the market turmoil, Federal Reserve Chair Jerome Powell reiterated the central bank’s neutral stance.

“We will continue to carefully monitor the incoming data, the evolving outlook, and the balance of risks. We are well-positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy,” Powell said in his opening remarks at the Society for Advancing Business Editing and Writing Annual Conference, in Arlington, Virginia.”