The US financial markets have been submerged in a sea of red ink, drowning institutional investors and retail traders who just wanted to buy the dip. But while hedge funds, money managers, and crypto bros cry at the negative percentages across their portfolios, one class of investors is cheering: gold bugs. The yellow metal has rocketed this year, extending the positive momentum it experienced in 2024. But is gold’s meteoric ascent signaling doom ahead?
Gold Glitters on Wall Street
Gold prices recently closed above $3,000 for the first time ever. During the March 18 trading session, gold futures registered a fresh intraday high of $3,047.50 an ounce. Year-to-date, the precious metal is up 15%, adding to its 12-month rally of about 40%. Its sister commodity, silver, is also popping as the white metal eyes $35 an ounce for the first time in nearly 15 years.
The metal commodity has benefited from safe-haven demand, with investors seeking shelter from the turbulent and ominous storm clouds forming over the New York Stock Exchange. As the leading benchmark averages plunge, be it the blue-chip Dow Jones Industrial Average or the tech-heavy Nasdaq Composite Index, traders are diving into conventional safe-haven assets like gold and US Treasury securities. Retail investors and the titans of The Street are buying gold, but one group has driven a large share of the consumption: central banks.
Central bank demand has accelerated over the last few years as these institutions prepare for volatility in the global economy, diversify their holdings, and shield themselves from market turmoil. According to the World Gold Council, gold purchases by central banks continued to start off 2025, with various emerging market entities scooping up the yellow metal.
Gold prices have also found support from a weakening greenback and falling Treasury yields. A lower buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to acquire. Gold is typically sensitive to interest rates because it can influence the opportunity cost of holding non-yielding bullion.
Overall, gold, silver, and even copper have thrived in this economic climate of uncertainty while everyone else has struggled to survive.
Tariffs and Wages
President Donald Trump’s trade policy changes have ignited a tarrifying case of climbing inflation expectations. The University of Michigan’s March Consumer Sentiment Index reported that respondents' one-year inflation outlook climbed to 4.9%, the highest reading since November 2022. The five-year horizon also surged to 3.9% from 3.5%, the biggest one-month increase since 1993. The Conference Board’s Consumer Confidence Index and the RealClearMarkets/TIPP Economic Optimism Index have signaled ballooning inflation expectations.
Why do Americans think the inflation flame will be rekindled? Tariffs. The economic literature and data indicate levies, whether targeted (washing machines) or universal, fuel price increases. Economists and policymakers will urge caution since trade strife can unanchor inflation expectations and lead to uncertainty on the monetary front. Additionally, growing inflation forecasts can lead to higher wages, which mainstream economists assert will refuel price pressures in the broader marketplace.
The Federal Reserve insists that today’s higher nominal wages are not a source of inflation. This is a correct conclusion. At the same time, Deutsche Bank economists sounded the alarm that a retightening of the labor market and elevated short-run inflation expectations could lead to stronger wage growth, reviving the inflation threat. “Using a simple model of ECI wage growth, a scenario analysis shows that wages could modestly reaccelerate if inflation expectations remain at recent elevated levels. The acceleration would become more substantial if the labor market re-tightens,” they wrote in a note. “These results suggest the Fed should not ignore short-run inflation expectations as they assess how to respond to this trade war.”
The futures market does not anticipate the Fed to act until the June meeting. Fed Chair Jerome Powell has repeatedly stated that he and his colleagues are not in a hurry to lower interest rates because the economy and monetary policy are in a good position. In the meantime, the Eccles Building will wait for more clarity on the Trump administration’s policies and more data highlighting more progress on inflation.
Is the Recession Canceled?
Panic has been in the streets since the Atlanta Fed slashed the GDPNow Model estimate for the first quarter to as low as negative 2.8%, laying the groundwork for a potential recession. Although the widely watched gauge has been upgraded a few times, the regional central bank still expects a contraction in the first three months of 2025, mainly due to soaring gold imports.
Others say recession odds are higher, and various signals are flashing red. However, the R-word has temporarily been canceled after two key reports. First, February retail sales rebounded 0.2%, following a sharp 1.2% decline in January. The report's non-core "Retail Sales Control Group" component, which contributes to GDP growth calculations, surged 1%. Second, in February, manufacturing and industrial production soared at a higher-than-expected 0.9% and 0.7%, respectively. Durable goods orders could be the next vital piece of information to support or oppose the recession case.
The economic landscape is delivering mixed signals. Even the new administration is not exactly clear on the subject, from President Donald Trump declining to rule out a downturn to Commerce Secretary Howard Lutnick emphatically declaring there would not be a recession. In the first year of Trump 2.0, the public is going to have a horrible case of whiplash.
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