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Gold soars, capital flows to Europe

market snapshot

Insight
25 April 2025 |
Macro
The gold price soared to new highs this week amid ongoing market uncertainty, while Europe continues to benefit from the United States’ uneven rollout of tariffs.

Fast reading

  • The price of gold hit US$3,500 a troy ounce for the first time ever on Tuesday as investors prioritised stability.
  • The US dollar – generally seen as another safe haven – dropped to a three-year low against leading currencies amid further market volatility.
  • Capital is flowing towards Europe, buoyed by confidence in strong institutions, governance, and equity markets which typically trade at discounts relative to their US counterparts.

The price of gold hit a new record high on Tuesday as investors piled into what is generally seen as a dependable safe haven asset. However, investors appeared less keen on another traditional source of refuge: the US dollar.

The price of gold hit US$3,500 a troy ounce for the first time ever on Tuesday, up from US$2,6581 in January, following US President Donald Trump’s attacks on Federal Reserve Chair Jerome Powell, which have fuelled concerns about the central bank’s independence. The Trump administration later clarified that there were no plans to remove Powell, but this latest incident – on top of other missives from the White House – has dented investor confidence. The sharp rise in global trade tensions has weakened the economic outlook for the US – growth is now expected to be 1.8% this year (down from a 2.7% forecast in January), according to the IMF2 .

Figure 1: Investors flock to gold

This uncertainty has further impaired confidence in the US economy and pressured the dollar.

Uncertainty has encouraged significant equity market swings in recent weeks, and boosted demand for gold, but it has also led to downwards pressure on the US dollar.

“Last week, President Trump commented that the administration was making great progress and receiving many inbound calls about tariffs. But unfortunately, the market is still waiting for a major negotiation announcement. This uncertainty has further impaired confidence in the US economy and pressured the dollar. The DXY Index, a measure of the dollar on a global scale, dropped below 100 last week, and is now trading at its lowest level since early 2022,” says Damian McIntyre, Senior Portfolio Manager for Multi Asset at Federated Hermes.

Figure 2: Dollar comes under pressure

Capital flows to Europe

Europe has emerged as another beneficiary of the uncertainty which has become synonymous with the US. Capital is flowing towards Europe, buoyed by confidence in strong institutions, governance, and equity markets which typically trade at discounts relative to their US counterparts.

US equity funds witnessed an outflow of US$10.62bn last week, while European equity funds saw inflows of US$11.13bn, according to LSEG Lipper data3.

“The impact of the US tariffs – their breadth, magnitude, and the way in which the policy has been implemented – leaves global investors facing a new reality in which US exceptionalism is no longer the narrative. Though we don’t see the US dethroned as the world’s major economy, Europe’s stability and slow-moving institutions offer confidence and, in this market, that is a draw for capital. Though elections bring their own risks, we anticipate capital inflows to continue for as long as European togetherness holds,” says Lewis Grant, Senior Portfolio Manager for Global Equities at Federated Hermes Limited.

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