Gold prices stabilized following a slight decline, as investors digested a broader market pullback triggered by growing concerns about a potential slowdown in the U.S. economy. The retreat in stocks and commodities came as investor sentiment shifted, fueling fears of a recession.
Gold prices hovered above $2,887 an ounce, following a drop of less than 1% on Monday. The downturn came after former President Donald Trump’s comments over the weekend, signaling that the U.S. economy could face challenges before showing signs of improvement. His reshaping of trade policies, including tariffs, has further fueled worries about a possible economic slowdown. Although gold typically dips during market downturns as investors sell the metal to cover broader losses, the precious metal remains a favored asset in times of economic uncertainty.
Despite Monday’s dip, gold is still up 10% year-to-date, continuing its record-breaking performance. This rally has been driven by ongoing concerns over disruptions linked to the Trump administration, central-bank buying, and speculation that the Federal Reserve may further reduce interest rates. Gold, as a non-yielding asset, tends to perform well when borrowing costs are low.
However, the rise in gold prices has dampened demand for physical metal, especially in some of Asia’s major markets, such as India and China. On the other hand, gold-backed exchange-traded funds (ETFs) have experienced consistent investment inflows, with holdings reaching their highest level since December 2023, according to Bloomberg data.
Suki Cooper, an analyst at Standard Chartered Plc, noted that while the physical gold market lacks a solid foundation due to weaker demand in key regions, she expects gold prices to reach new highs this year. Cooper emphasized that a stronger flow into ETFs will be necessary to offset the decline in physical metal demand.
Ahead of the Monday selloff, investor sentiment had already shown signs of caution, with hedge funds reducing their bullish positions in gold. According to the latest data from the Commodity Futures Trading Commission, hedge funds trimmed their gold exposure to a nine-week low.
As of 8:58 a.m. in Singapore, spot gold remained unchanged at $2,887.77 an ounce. The Bloomberg Dollar Spot Index held steady after rising on Monday, while silver, palladium, and platinum continued to face losses.
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