Market Analysis

Geopolitics and Gold: A Modern Surge Driven by Trade Wars and Global Instability

Amos Simanungkalit · 08 Apr724.1K Views

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Gold’s recent surge to record highs has drawn comparisons to the last time political and economic turmoil drove prices to unprecedented levels, in 1980. However, analysts argue that the current rally, and its potential for longevity, may be different.

With escalating tensions between major powers over U.S. tariffs, global trade issues, and ongoing conflicts in Ukraine and the Middle East, it seems unlikely that international cooperation will resolve these problems quickly. This uncertainty has reignited interest in gold as a safe-haven asset.

Gold surpassed $3,000 an ounce recently, driven by U.S. President Donald Trump’s latest round of tariffs on trade partners. Spot gold reached a record $3,167.57 per ounce last week, marking a 16% rise this year, building on 27% growth in 2024. While the trajectory of the gold market may not be smooth, analysts believe that the current rally is more sustainable than the one observed 45 years ago.

The precious metal's inverse correlation with trade flows has fueled its rise, especially with fears of an escalating trade war. Trump’s tariff policies, including imposing the steepest trade barriers in more than a century, have prompted new investors to seek refuge in gold.

Meanwhile, the U.S. dollar, once a primary safe-haven, shows signs of losing its dominance as the trade war intensifies.

Since taking office, Trump has disrupted the global order, signaling that the U.S. may no longer guarantee Europe’s security, as it has since World War II, and shifting the country’s approach to the war in Ukraine. He has also suggested the U.S. could annex Greenland.

The geopolitical issues that drove gold prices in 1980, such as the Iranian Revolution and the oil crisis, were resolved relatively quickly, which led to a decline in gold prices. But this time, the breakdown in international cooperation has contributed to gold maintaining high prices, with analysts like HSBC’s James Steel speculating that there’s now a “larger geopolitical bid” supporting gold.

Beyond trade tensions, the 2020s have seen a series of crises driving gold’s appeal. These include the COVID-19 pandemic, Russia’s 2022 invasion of Ukraine, the Chinese property market crisis, and the Israel-Gaza conflict. The Ukraine war, in particular, led to Western sanctions freezing half of Russia’s foreign currency reserves, with Russia turning to gold as a store of value. This prompted non-Western central banks to increase their gold holdings, diversifying away from the dollar.

Monetary easing and budget deficits have also led to increased Western investment in gold, with analysts noting that these crises are more complex than previous ones, and no coordinated global response is expected.

While the market has reached new highs, there’s still a milestone ahead. StoneX analyst Rhona O’Connell pointed out that gold peaked at $850 per ounce in January 1980, which would be the equivalent of $3,486 in today’s terms. Despite hitting new highs in nominal terms, HSBC’s Steel argues that gold may not yet have surpassed the real highs of the 1980s.

Looking ahead, expectations are growing that gold’s rally may extend into 2026. Bank of America commodity strategist Michael Widmer has raised his gold price forecast to $3,063 in 2025 and $3,350 in 2026, with a potential to reach $3,500 in the next two years.

Widmer acknowledges that while predicting $3,000 for gold was relatively easy, reaching $3,500 presents a greater challenge. However, he believes that a scenario where global cooperation returns, trade wars subside, the U.S. Federal Reserve raises rates, and economies stabilize would bring an end to the gold trade for the time being. Yet, he sees this outcome as unlikely.