Is there a desire to diversify out of dollar assets into gold?

“Gold surged past $3,500 an ounce for the first time before paring some gains, as concern that President Donald Trump could fire Federal Reserve Chair Jerome Powell triggered a flight from US stocks, bonds and the dollar.

Bullion gained as much as 2.2% on Tuesday to briefly touch $3,500, before easing as traders took profits. Safe havens such as the yen, the Swiss franc, and gold have rallied in recent sessions following Trump’s repeated calls on the Fed to cut interest rates immediately, a move seen as a threat to the central bank’s independence that drove the dollar to the lowest since 2023.

“But there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump said on social media on Monday, referring to Powell.

Bullion has surged about 32% this year, outperforming nearly every other major asset class, as investors flee equities exposed to an expanding trade war. Typically in risk-off moments, traders turn to US government debt. But given a recent selloff in Treasuries and the US fiscal position generally, gold is now “the only true safe haven left,” according to analysts at Jefferies Financial Group Inc.

“Gold’s rapid ascent this year tells me that markets have less confidence in the US than ever,” said Lee Liang Le, an analyst at Kallanish Index Services. “The ‘Trump Trade’ narrative has evolved into a ‘sell America’ narrative,” she said.

The rally began in early 2024, as central banks, seeking to diversify their foreign exchange holdings beyond the US dollar and insulate themselves from the threat of sanctions, became big buyers. More recently, flows into bullion-backed exchange-traded funds have picked up. Trading volumes in China have also seen explosive growth in recent weeks.

Banks have also become progressively more positive about gold as this year’s rally has gone from strength to strength. Among them, Goldman Sachs Group Inc forecast the metal could hit $4,000 an ounce midway through next year.

The precious metal’s rally shows “that there is a desire to diversify out of dollar assets into a broader range of safe havens,” Kamakshya Trivedi, head of global FX, rates and emerging-market strategy at Goldman Sachs, told Bloomberg TV.

Still, the rapid recent gain has stretched some closely watched metrics, suggesting the upswing could pause at some point. Bullion’s 14-day relative-strength index — a gauge of the pace and intensity of moves — topped 78, above the level of 70 that can point to an asset being overbought.

What Bloomberg strategists say…
“Bullion is extremely overbought in the short term, which makes it ripe for a correction. That, however, is not to be mistaken for its medium-term trajectory: bullion performs best when the global economy is in distress, and the scale of current economic uncertainty is immense.”
Ven Ram, Macro Strategist, Dubai

Gold for immediate delivery traded 0.9% higher at $3,453.78 an ounce at 12:43 p.m. in London, easing back from its new all-time high. The Bloomberg Dollar Index was steady. Silver was steady, while palladium and platinum rose.

Bullion’s jump has lifted miners’ shares. In Hong Kong, stock in Zijin Mining Group Co., a leading Chinese metals producer, surged more than 6% at one stage on Tuesday. It’s rallied by more than a quarter this year.”