Gold industry benefits from currency fluctuations
In the latest monthly update, Imaru Casanova - Investment portfolio manager for gold and precious metals, and Gold strategist Joe Foster said that gold prices increased sharply in February mainly due to safe-haven demand, as the market was concerned about the trade policy of the new US administration.
The effectiveness of the Trump administrations policies, combined with rising inflation expectations and declining consumer confidence, has put pressure on major stock indexes, further increasing the attractiveness of gold as an alternative investment asset and a portfolio diversifier.
An important factor driving the latest increase in gold is the strong increase in holdings of gold ETFs. Total gold held by ETFs increased by 2.49% in February, marking the largest monthly cash flow since March 2022," they said.
Although the stronger US dollar and profit-taking activities in the last week of February caused gold prices to decline slightly from new highs, the precious metal still ended the month at $2,857.83/ounce, up $29.42 (equivalent to 2.12%) for the month.
The NYSE Arca Gold Miners Index (GDMNTR) - a stock index that tracks the performance of gold mining companies listed on the NYSE Arca exchange, increased by 2.01% in February, much better than the general stock market, but still could not catch up with the increase in gold prices.
However, since the beginning of the year, gold stocks have shown a strong rebound against gold prices, up 17.22% compared to the 8.89% increase of gold bars - they noted.
Casanova and Foster said that the majority of the gold industry is not negatively affected by global tariff policies.
In fact, many gold mining companies may benefit from the depreciation of foreign currencies caused by these tariffs, as a significant part of their operating costs are calculated in local currency, they wrote.
USD gradually loses global position
Experts say the US dollar has been a pillar of the global financial system for more than a century, but this is starting to change.
The US dollar has strengthened against other currencies largely thanks to the solidity of the US economy and the USs reputation as one of the safest investment destinations, they said, sharing a chart showing the long-term uptrend of the USD index in recent years.
However, despite its strength, the US dollar is depreciating against gold an unprecedented trend that few see as a threat to the currency or a sign of an imminent crisis, they said.
Experts say that strong increases in gold prices are often driven by uncontrolled inflation, a weakening of the USD and financial crises. However, a new emerging factor in the gold market: a decline in confidence in the USD.
individuals and countries that have long used, hoarded and longed for the US dollar are now gradually losing confidence in it as a means of storing value.
This change began in 2008 when the global financial crisis made many people question the effectiveness of the banking system and the dominance of the Western economy. The situation has escalated as the US imposes sanctions and freezes Russian assets. Other countries are concerned that similar sanctions could be imposed," they said.
The experts emphasized that China has reduced its holdings of US Treasury bonds while increasing its gold reserves.
Central bank net gold purchases have begun to increase sharply after the financial crisis and have been accelerated after the war in Ukraine.
We believe this is the beginning of a long-term trend, which is being characterized as a crisis of confidence in the US dollar, and this could push gold prices much higher than market expectations, they pointed out.
