Gold: Trade Policy Chaos and Fed Easing Cycle Reinforce Safe-Haven Demand Above $5,000

Gold futures (GCUSD) closed at $5,081 on February 21, posting a daily gain of $83.50 or 1.67%. The session saw a wide trading range between $4,999 and $5,131, with the metal briefly testing below the psychologically significant $5,000 level before aggressive buying pushed it higher.

The technical picture remains decisively bullish. Gold's 50-day moving average of $4,773 and 200-day moving average of $4,030 both sit well below the current price, confirming a sustained uptrend. The year-to-date range has been extraordinary — from a low of $2,844 to a high of $5,627 — representing a near-doubling that underscores the structural nature of this rally.

Volume at 128,686 contracts came in above the 50-day average of 122,805, suggesting genuine conviction behind the move rather than thin-market noise. The price action is consistent with institutional accumulation, with dips below $5,000 being treated as buying opportunities rather than signals of a breakdown.

The immediate catalyst for gold's latest surge was the escalating chaos in U.S. trade policy. The Supreme Court's decision to strike down the administration's reciprocal tariff framework — tariffs calibrated country-by-country to match trading partners' rates — initially sparked relief across equity markets. But the optimism proved short-lived.

President Trump responded by announcing plans to impose a blanket 15% tariff on all global imports, replacing the invalidated reciprocal structure with a blunter instrument. The announcement sent shockwaves through markets already reeling from months of trade policy whiplash. As the BBC reported, Trump's move threatens to rip up the global trade order just as businesses were beginning to adapt to the court's ruling.

For gold, trade uncertainty is unambiguously positive. The metal thrives when policy outcomes are binary and unpredictable — exactly the conditions created by a tariff regime that could change shape overnight. UK firms, European manufacturers, and U.S. retailers all face existential uncertainty about their cost structures, and that uncertainty drives capital toward assets with no counterparty risk.

Small furniture retailers, CNBC noted, face an existential threat from tariffs even after the Supreme Court ruling. When businesses cannot plan beyond the next policy announcement, the demand for financial insurance — which is fundamentally what gold provides — rises in lockstep.

The Federal Reserve's rate-cutting campaign has been one of the most powerful tailwinds for gold over the past year. The effective federal funds rate has declined from 4.33% in February 2025 to 3.64% in January 2026 — a cumulative 69 basis points of easing that has reduced the opportunity cost of holding a non-yielding asset like gold.

The 10-year Treasury yield has dropped to 4.08% as of February 19, down from 4.29% at the start of the month. With CPI at 326.6 in January (implying an annual inflation rate of approximately 2.2%), real yields have compressed to roughly 1.9% — well below the 2.5%+ levels seen in mid-2025 that briefly challenged gold's rally.

The yield curve spread (10Y minus 2Y) has narrowed to 0.60%, signalling that the bond market expects further easing ahead. For gold, this is a critical indicator: a flattening or inverted yield curve historically correlates with recession fears and safe-haven flows. The combination of falling nominal yields and persistent inflation creates a sweet spot for gold — investors earn less on bonds while the purchasing power of those returns continues to erode.

The U.S. Dollar Index (DTWEXBGS) has weakened from 118.50 on February 5 to 117.53 on February 13, a decline of roughly 0.8% in just over a week. While modest in absolute terms, the direction matters more than the magnitude for gold pricing. Dollar weakness reduces the cost of gold for international buyers, broadening the pool of potential demand.

The dollar's decline aligns with the Fed's easing trajectory and the trade policy chaos that has eroded confidence in U.S. economic leadership. The "Sell America" trade — a narrative that emerged in early February as investors questioned the sustainability of U.S. fiscal and trade policy — has found expression in both weaker dollar flows and stronger gold demand.

Central bank gold purchases remain a structural pillar of demand. The People's Bank of China, Reserve Bank of India, and several emerging market central banks continued to accumulate reserves throughout 2025, diversifying away from U.S. Treasury holdings amid geopolitical tensions. The World Gold Council's data showed central banks purchased over 1,000 tonnes for the third consecutive year, a pace that has fundamentally altered the supply-demand balance.

Institutional demand through exchange-traded products has also rebounded. After outflows in the first half of 2025, gold ETFs have seen consistent inflows since September, driven by portfolio managers increasing their gold allocation as a hedge against both inflation and policy uncertainty.

The bull case for gold rests on the continuation of current trends: further Fed easing, persistent trade uncertainty, central bank buying, and sticky inflation that erodes real returns on fixed income. If the federal funds rate reaches 3.0% by late 2026 — a trajectory consistent with futures market pricing — gold could test or exceed its 52-week high of $5,627.

Gold's role as portfolio insurance has been validated repeatedly in 2025-2026. During the tariff-induced equity selloffs, the AI disruption scare, and the banking stress episodes, gold consistently delivered positive returns when other assets faltered. A 5-10% gold allocation has historically reduced portfolio drawdowns without materially sacrificing long-term returns.

The bear case centres on a potential stabilisation of trade policy (the blanket 15% tariff, if implemented cleanly, could reduce uncertainty compared to the reciprocal regime), a pause in Fed easing if inflation reaccelerates, or profit-taking after gold's near-doubling from its 52-week low. Technical resistance near $5,100-$5,130 could also trigger short-term pullbacks.

However, the structural drivers — de-dollarisation, central bank diversification, and the long-term fiscal trajectory of the United States — remain intact regardless of short-term price action. Gold's 200-day moving average of $4,030 provides substantial technical support, and the risk-reward for long positions at current levels skews positive on a 6-12 month horizon.

*This article is for informational purposes only and does not constitute financial advice. Gold is a volatile asset and past performance does not guarantee future results.*