Gold appeared to be headed straight for $5,000 until President Donald Trump discovered a possible way to impose further taxes on Europe.
There is no doubt that gold will eventually hit $5,000 an ounce for the first time given its significant gains just three weeks into the new year.
However, the metal’s chances of soon hitting that level may have been hampered by a significant shift in the headlines on Wednesday afternoon.
Regarding his attempts to acquire Greenland, President Donald Trump declared that a meeting with NATO Secretary General Mark Rutte had produced the groundwork for a future agreement. Trump responded by declaring he would not apply the penalties he had previously threatened to nations that disagreed with his intentions.
In what some would call a “TACO” moment for markets, this resulted in an increase in benchmark stock indexes and Treasury bonds as well as strength in the US dollar.
The term “Trump always chickens out” (TACO) refers to the notion that investors have made money by purchasing the dips that typically follow Trump’s initial tariff warnings.
In a report released early Wednesday, Pepperstone research strategist Dilin Wu cautioned that gold’s rising momentum might be severely weakened if another “TACO” moment occurs and geopolitical uncertainties swiftly subside in the upcoming weeks, causing safe-haven flows back into stocks and bonds.
On Wednesday afternoon, it was in fact the case.
Gold prices had dropped from their all-time high by late Wednesday afternoon, but they had maintained strong weekly gains and were still trading around $4,800 per ounce.
On Wednesday, gold for February delivery (GC00) (GCG26) closed at a new high of $4,837.50 per ounce, up 1.5%. According to Dow Jones Market Data, it had reached its fifth intraday record high of the year at $4,891.10.
Defense against loss
Although gold’s attractiveness as a safe haven is still a vital source of support, it has also found a new use as what one strategist called a “insurance asset.”
Its worth comes from its capacity to guard against loss in a world beset by political and economic forces, such as concerns about the Federal Reserve’s future independence and American intentions for Venezuela. Gold may be able to test and maintain the crucial $5,000 price level with the aid of such “insurance” value.
“Unlike past rallies driven mainly by rate-cut expectations, dollar fluctuations or isolated geopolitical events, gold has now become an insurance asset within a complex macro environment, protecting credit systems, monetary systems and geopolitical order,” Wu stated.
This implies that the same variables that propelled gold’s previous rallies won’t be necessary for its ascent after its historic 2025 outburst. Rather, she said in a column on Wednesday that prices can “naturally” stretch higher as long as uncertainty exists.
Wu stated that gold is still within reach of the $5,000 mark, implying that a rise to that level would be a logical continuation of the advances thus far.
However, the more important question is whether gold can maintain that level of price.
According to Antonio Di Giacomo, senior market analyst at XS.com, in order for the metal to remain above $5,000 on a “sustained basis,” the macroenvironment would have to support the higher long-term valuation.
“That would imply structurally lower real interest rates, ongoing diversification away from the U.S. dollar in global reserves, persistent geopolitical fragmentation, and continued strong institutional and central-bank demand,” Di Giacomo wrote in an email to BourseWatch
Any increase toward $5,000 would “risk becoming an overextended move followed by a corrective phase rather than a new long-term equilibrium” in the absence of those structural forces, according to Di Giacomo. In other words, rather than stabilizing at that crucial price point, gold’s value could decline.
