By Polina Devitt

LONDON (Reuters) – Gold prices have marched into uncharted territory as bulls latch on to economic uncertainty created by U.S. import tariff plans. However, behind the prize of hitting a record $3,000 per ounce, some flags of a bear case are also being planted.

Gold has had a storming start to 2025, smashing eight records to rise more than 10% by February 11. This followed its biggest annual gain in 14 years in 2024, fueled by strong central bank purchases, geopolitical uncertainties, and monetary policy easing.

Gold’s appeal as a haven from risk strengthened further as newly elected U.S. President Donald Trump turned to tariffs to aid struggling domestic industry, despite the risk of sparking a trade war. When Trump raised tariffs on steel and aluminium this week, spot gold hit a record $2,942.70 per ounce.

“What we have seen is the change in the motive for safe-haven buying – from being driven by the Middle East uncertainty to the threat and realisation of tariffs,” said Philip Newman, managing director at consultancy Metals Focus.

The scale of last year’s growth, which started before the Federal Reserve began easing interest rates, was unexpected. Investors appeared willing to disregard the opportunity cost of holding zero-yielding gold. The market also often decoupled from other usual headwinds such as a stronger dollar.

“Strikingly, gold was rallying as inflation eased, and it looked as though all our understanding of how gold prices behaved was being challenged,” noted independent analyst Ross Norman.

Gold bulls have been emboldened by concerns that U.S. tariff plans could affect gold supplies to the United States, where Comex gold futures trade. As a result, the premium at which most-active U.S. gold futures trade over the London spot price – historically just a few dollars – saw wild volatility and widened to $40 per ounce just before Trump’s inauguration on January 20 and more than $60 during the inauguration week.

Market players sought to benefit from a lucrative arbitrage opportunity or cover their existing Comex positions, drawing massive deliveries to Comex gold inventories. These have jumped by 18.6 million troy ounces, worth $54 billion, since late November.

In London, home to the world’s largest over-the-counter gold trading hub, bullion market players rushed to borrow gold from central banks storing bullion in Bank of England vaults, causing waiting times to load gold out of the BoE to swell. Switzerland and Asia-focused hubs also saw a jump in supplies to the U.S., and gold lease rates surged both in London and India.

ACTIVITY PREDICTED TO FADE

However, by Tuesday, the Comex premium had narrowed to $28 per ounce. Although inflows to Comex gold stocks continue, traders and analysts expect this activity to fade.

“Following a surge of gold imports into New York, it seems likely that the dislocation between New York futures prices and the London OTC market is nearing an end,” said John Reade, senior market strategist at the World Gold Council.

“As the next few weeks pass, queues getting gold from the Bank of England’s vaults should diminish, easing an apparent shortage of liquidity in the London market.”

Nicky Shiels, head of metals strategy at MKS PAMP SA, stated that while prices could break towards $3,200, ongoing structural changes and reduced risk appetite point towards a bearish outlook. She added that her firm’s average price forecast for 2025 would remain at $2,750, with no intention to revise forecasts upward.

Despite the recent surge, the situation with tariffs could soon ease the rally, as jewellery demand has declined due to high gold prices, with discounts noted in key markets like India and China. Cartier maker Richemont mentioned in November it was being “extremely cautious” about passing on soaring gold prices in its pricing of watches and jewellery.

Emerging market central banks, according to BofA Securities, risk reducing gold buying if domestic currencies weaken due to U.S. tariffs. Physically backed gold exchange-traded funds have also seen mixed activity, with inflows in Europe but outflows in North America in January.

From a technical perspective, gold has remained in the overbought zone of its relative strength index since February. Additionally, gold may face strong resistance around significant milestones like $3,000, as it experienced faltering above the $2,000 level several times before a decisive break last year.