Gold Prices Surge Amid Escalating U.S.-China Trade Tensions

The price of gold has surged to a record high following China’s imposition of retaliatory tariffs on U.S. exports, reflecting growing demand among central banks and investors anticipating a deepening trade war between the two economic giants.

According to a Feb. 5 report by the World Gold Council, global investment demand for gold increased by 25 percent year-on-year in 2024, reaching a four-year high of 1,180 metric tons (42 million ounces). Central banks have expanded their gold reserves for three consecutive years, accumulating over 1,000 metric tons (35 million ounces) in 2023 alone. Despite uncertainty surrounding potential interest rate cuts by the U.S. Federal Reserve, the upward trend in gold prices is expected to persist. Goldman Sachs recently revised its forecast, predicting gold will reach $3,000 per ounce by mid-2026—six months later than previously projected.

On Feb. 5, the spot price of gold climbed another 2 percent, following a historic peak of $2,800 per ounce on Jan. 30. This increase comes amid escalating trade tensions, with U.S. President Donald Trump imposing a 25 percent universal tariff on Mexican and Canadian goods, effective Feb. 4. Although the enforcement of these tariffs was delayed by a month after agreements to curb fentanyl inflows, the risk of further trade restrictions remains high. Negotiations regarding a 10 percent universal tariff on Chinese goods, announced on Feb. 1, are still ongoing.

In response, Beijing announced a 15 percent tariff on selected U.S. imports, effective Feb. 10, targeting approximately $20 billion worth of goods. Meanwhile, U.S. tariffs impact over $400 billion in Chinese exports. The discussions between the two nations are largely focused on fentanyl, a synthetic opioid responsible for over 200 American deaths per day. The U.S. has accused China of facilitating fentanyl production by exporting its precursors to Mexico, where they are then processed and smuggled into the United States. Following the announcement of new U.S. tariffs, China urged Washington to address its domestic fentanyl crisis “objectively and rationally” rather than using tariff hikes as leverage.

Trump is expected to engage in trade negotiations with Chinese leader Xi Jinping in the near future. However, tariffs on Chinese goods are likely to remain in place as his administration reviews China’s trade policies and compliance with the 2020 “phase one” trade agreement. The findings of this review, which could shape future U.S. trade actions, are set to be released on April 1. Trump has also indicated that the European Union may be the next target of U.S. tariffs.

Chinese Investors Drive Gold Boom

As the world’s largest consumer of gold, China plays a crucial role in driving market demand. While demand for gold jewelry in the country has weakened, investment in gold bars and coins has surged. A report by the World Gold Council highlighted that China’s struggling economy, weighed down by a prolonged property sector crisis since 2021, has pushed more investors toward gold as a safeguard against financial instability.

The China Gold Association reported a 25 percent increase in purchases of gold bars and coins last year, reaching 373 metric tons (13.2 million ounces). This shift reflects a growing preference for gold as a secure store of value rather than a luxury commodity. Chinese authorities have acknowledged this trend, stating that gold’s hedging and value-preserving properties have become more pronounced.

China’s central bank has also bolstered its gold reserves, bringing its total holdings to 73.29 million ounces by the end of 2023. Analysts expect ongoing tensions between Washington and Beijing to sustain demand for gold, further driving up its price.

The World Gold Council anticipates that gold demand will remain strong in 2025, citing continued geopolitical and economic uncertainty as key factors influencing its role as a hedge against risk.