Gold glitters

Gold prices surged to a new record high this week, reaching $3,357.40 per ounce on Thursday, April 17, before easing slightly due to profit-taking ahead of the Good Friday holiday . The rally was fueled by escalating trade tensions, particularly President Trump's tariffs on China, which have intensified concerns over inflation and economic growth. In response, investors have increasingly turned to gold as a safe-haven asset, with central banks and institutional buyers, notably Chinese insurers, boosting demand . Analysts, including those from Goldman Sachs and UBS, have raised their gold price forecasts, anticipating continued upward momentum amid the prevailing market uncertainties.

• Gold is now up a stunning 26% year-to-date and up almost 40% over the last 12 months
• We have written about gold over the last few years, as central banks globally have been accelerating in their purchases
• During periods of uncertainty, the safe haven asset has historically been the US dollar and US treasuries
• Given Trump’s tariff policies, for now, this is no longer the case
• The US dollar is down almost 10% from its peak earlier this year versus a basket of major currencies
• From a portfolio construction perspective, historically, the 60/40 (stocks/bonds) approach was based on the determination that stocks and bonds are negatively correlated (one moves up when the other moves down)
• Since Covid, we have witnessed this historical relationship change, with stocks and bonds often moving in sync with each other
• Gold may now serve as a diversification tool for stock portfolios in the current environment

ECB cuts while Fed stays put

​The European Central Bank (ECB) cut its main interest rate by 25 basis points to 2.25% this week, marking its third reduction in 2025 and seventh in the current easing cycle. The move comes amid escalating trade tensions, particularly President Trump's tariffs on EU goods, which have raised concerns about eurozone growth and inflation. ECB President Christine Lagarde cited the potential drag on eurozone growth, investment, and consumption due to these trade tensions. ​ In contrast, the Federal Reserve has maintained its benchmark rate at 4.25%–4.50%, emphasizing a cautious approach amid economic uncertainties. Fed Chair Jerome Powell acknowledged the heightened market volatility following President Trump's recent tariff actions but maintained that the Fed would not intervene unless serious market disruptions occur.

• As the world reacts to Trump’s tariff policy, the Federal Reserve has maintained its wait-and-see approach
• However, if you observe the yield on the 2-year treasury, it seems like the Fed Funds rate, currently at 4.25-4.5%, may be 0.50 - 0.75% too high
• Additionally, prediction markets call for 2-3 rate cuts this year
• Trump has stepped up his public pressure on Fed Chair Powell to cut interest rates
• This would ease financial conditions and provide a boost to stock prices, even if for the short–term
• It will be interesting to observe how Chair Powell navigates the pressure to cut rates while maintaining the Fed’s independence and core focus

Companies withdraw or cut guidance

​In recent weeks, several major companies have withdrawn or adjusted their earnings guidance due to the uncertainty stemming from President Trump's new tariffs. Delta Air Lines and Frontier Group both pulled their full-year forecasts, citing weakened travel demand and economic unpredictability . United Airlines took a different approach by issuing dual earnings projections: one for a stable environment and another anticipating a recession . Retailers and consumer goods companies, including Diageo and Logitech, have also rescinded or scaled back their forecasts, highlighting the widespread impact across sectors. Analysts note that this wave of guidance withdrawals is reminiscent of the early pandemic period, reflecting the significant challenges businesses face in navigating the current trade policy landscape.

• The uncertainty created by Trump’s tariff policies makes it difficult for companies to plan for the future
• The pulling of guidance by companies will continue until there is more clarity
• This will serve as a headwind to stocks, as guidance provides investors with a roadmap to future earnings potential of companies

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