Gold Rebounds Near $3,000 as Market Tensions Ease

Gold and silver prices rebounded sharply this week, erasing most of their recent losses as President Trump delayed implementing tariffs on Mexico and Canada while the dollar plummeted to multi-month lows. The precious metals gained substantial ground despite mixed U.S. economic data, with gold approaching the psychologically significant $3,000 mark amid continuing global economic uncertainty and shifts in international capital flows.

Gold bullion hit $2,930 per troy ounce on Friday, recovering almost all of last week’s 3.4% decline. Silver followed suit, with London prices settling around $32.48 per troy ounce at the midday benchmark, regaining all but 50 cents of the previous week’s $1.80 plunge, according to BullionVault.

Key NYLON Arbitrage “Winding Down”

A significant factor driving recent precious metals volatility has been the unusual price differential between New York futures contracts and London physical bullion. This gap, which had seen Comex futures prices leap as much as $50 and $1 per ounce respectively above London bullion prices for gold and silver, has now contracted substantially.

The price disparities had triggered massive flows of physical metal into U.S. warehouses, with banking and logistics executives confirming to BullionVault that “the NYLON arbitrage is winding down.” By Friday, these arbitrage opportunities had shrunk to below $2 for gold and 25 cents for silver, indicating normalization in the international precious metals markets.

This shift comes as New York warehouses now hold what CNBC described as a “record glut” of gold equivalent to five years of domestic U.S. demand. Meanwhile, London vaults have seen their holdings decrease to the lowest levels since before the COVID-19 crisis, according to data from the London Bullion Market Association (LBMA).

Trade Policy Uncertainty Drives Volatility

The precious metals markets have been particularly sensitive to developments in U.S. trade policy. Thursday’s data revealed that the U.S. set a new record trade deficit in goods for the second consecutive month in January, importing $156 billion more than it exported—a rise of more than 71% from January 2024—as businesses rushed to take delivery before Trump returned to the White House.

That record deficit included an unprecedented $20.5 billion of “finished metal shapes” such as gold and silver bullion bars. These imports were driven by fears of potential U.S. trade tariffs on precious metals, which prompted a significant arbitrage opportunity between international markets.

President Trump’s decision on Thursday to delay most tariffs on Mexico and some on Canada for another month, just two days after reintroducing them, added further volatility to markets while providing temporary relief. “Donald Trump yesterday delayed most tariffs on Mexico and some on Canada for another month only 2 days after re-introducing them,” BullionVault noted.

Dollar Weakness Boosts Precious Metals

A significant factor supporting gold and silver prices has been the dramatic weakening of the U.S. dollar. The dollar index sank to new four-month lows on its trade-weighted DXY index, sending the Euro up to fresh 17-week highs close to $1.0890.

According to Kitco News, “The U.S. dollar index, which is heavily weighted in favor of the euro, is down 2.5% this week. This is the greenback’s largest weekly drop since early July 2022.” The currency shift comes as attention has turned to Europe, with the European Union announcing a €1 trillion fund that nations can tap to increase military spending.

Despite the dollar’s dramatic decline, some analysts have noted that gold hasn’t fully capitalized on this weakness, suggesting other market factors are at play. “Not only has gold not been able to capitalize on significant U.S. dollar weakness, but U.S. economic data has provided little direction for the yellow metal,” Kitco reported.

Changing Market Fundamentals

The physical gold market has shown significant shifts in recent months. Since the end of October, eve of Trump’s election win, gold custody holdings at the Bank of England have shrunk by 4.8%—a four-month pace exceeded only in mid-2022 and early 2012—while commercial vault outflows have totaled just 1.1%.

“Gold is moving from BoE into the Loco London system,” says the LBMA of today’s London vault data, “[and] also shows that the market dynamics that led to gold travelling to NY in recent months have somewhat eased. Silver outflows were slightly less than half in February compared to January.”

Australia, the world’s second-largest gold mining nation, shipped a record quantity of the precious metal to the USA in January, according to mining.com.au. This reflects the global rebalancing occurring in precious metals markets as traders respond to changing economic and political landscapes.

Analysts See Potential for $3,000 Gold

While gold has recovered most of its recent losses, analysts suggest the market may need fresh catalysts to break decisively above the $3,000 mark. Ole Hansen, Head of Commodity Strategy at Saxo Bank, told Kitco: “Gold will likely take another breather while we wait to see whether the U.S. will enter a period of stagflation. The risk of fiscal expansion in Europe may divert investment flows, but I see no reason why prices can’t move higher.”

Other analysts remain bullish despite near-term challenges. Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, sees gold potentially pushing past $3,000, supported by a 28% surge in 2024 and strong central bank demand. He cited a shaky consumer sentiment and uncertainties like Trump’s tariff policies as potential drivers for gold’s continued strength.

Lukman Otunuga, Manager of Market Analysis at FXTM, provided technical insights: “Although gold is still on track for a weekly gain, bulls need to keep prices above $2,856.40,” he said. “Looking at the week ahead, the incoming U.S. CPI data, Trump’s tariff drama, and a possible U.S. government shutdown could spell more volatility for gold.”

Economic Data Provides Mixed Signals

Friday’s U.S. employment data showed a relatively resilient labor market, with 151,000 jobs created last month—slightly below economists’ expectations of around 160,000. The jobless rate ticked up to 4.1% after easing from last fall’s three-year high of 4.2%. Average wage growth was also less than analysts expected.

Federal Reserve Chair Jerome Powell reiterated the central bank’s neutral stance on Friday, saying it was in no hurry to cut interest rates as the labor market remains relatively healthy and inflation risks are still elevated. This stance contrasts with market expectations earlier this year for multiple rate cuts in 2025.

Paul Ashworth, Chief North America Economist at Capital Economics, noted in a report that while the U.S. economy is expected to contract in the first quarter of this year, he anticipates it will avoid a technical recession. “For now, we don’t expect the U.S. economy to slide into recession,” he said, while acknowledging that uncertain factors like tariff-shy consumers and potential government restructuring could still impact GDP.

As markets look ahead to next week, analysts are carefully watching key technical levels. “Regarding the technicals, prices are trading within a minor daily range with support at $2,890 and resistance at $2,930,” Otunuga noted. “A move above $2,930 could push prices toward $2,950 and the psychological $3,000. Below $2,890, gold may test $2,860 and $2,835.”