Gold Trims 10% Drop from $3500 Record, Debt 'Matters More' Than Inflation
Thursday, 5/15/2025 16:04
GOLD PRICES more than reversed a plunge to fresh 5-week lows in London trade Thursday, as global stock markets fell again but government borrowing costs held near multi-week highs in the bond market despite slower GDP growth in Europe and negative inflation for US businesses.
Dropping over 10% at today's low from late-April's $3500 peak, the price of gold then rallied back above $3200 per Troy ounce − a new all-time high when first reached the week after US President Trump announced his
'Liberation Day' trade tariffs.
The 20-nation Eurozone today revised down its latest GDP estimate to show just 0.3% quarterly growth in January-to-March, eve of those new trade barriers.
April's clampdown on foreign imports into the USA then failed to stop wholesale prices in the world's largest economy making their largest month-on-month drop since spring 2020's Covid Crisis, with the Producer Price Index falling 0.5% from March.
That cut annual PPI inflation on the 'core' measure from 4.0% to 3.1%.
"Gold isn't about inflation," says David Einhorn, founder and president of US hedge fund Greenlight Capital,
speaking to CNBC.
"Gold is about confidence in fiscal and monetary policy. And since we bought gold in 2008...it's been very clear to me that US fiscal and monetary policies are both too aggressive and create a risk."
"What the world − [including] investors − are watching," says Peter Lefkin, head of government and external affairs in America for €1.9 trillion insurers and asset managers Allianz, "is when gross national debt exceeds gross domestic product.
"We're already there."
Democracies also often falter, he adds, "when a country spends more on interest payments than on defense" − echoing economic historian
Niall Ferguson's "law" that any great power which spends more on debt servicing than on defense "risks ceasing to be a great power."
"And we're there too," says Lefkin.
The Dollar gold price today hit $3121 per Troy ounce in Asian trade on Thursday, down 10.8% from last month's all-time high of $3500, before the price of gold in London's bullion market then rallied over $80.
US Treasury debt prices rallied only weakly, edging the yield on 2-year bonds down from 4.06% per annum − the highest since late February − while 10-year yields also slipped from 8-week highs, down nearly 5 basis points to 4.50%.
Reviewing the ruling US Republican Party's proposed cuts to income tax today, "the new plan is a mess," says
The Economist magazine.
"GOP tax bill on track to add $2.5 trillion to deficit" over the next decade, says a story at the
Washington Post.
"The [US government budget] deficit is [becoming] a bigger problem," agrees Australian bank AMP's head of investment strategy Shane Oliver, "because the tax package is coming into view and tariff revenue and DOGE spending savings look like being smaller" than projected.
"There's really no plan of action to address the real issues,"
says Lefkin at Allianz, "[rather than] the small things that [Elon Musk's Department of Government Efficiency] is picking up. That's why the bond market is asking: Where is this heading?
"Second, is America pulling away from its allies? Many have bought our bonds because we provide military protection and security. Is this still a safe country?"
Berlin today backed Washington's call for Nato nations to start spending 5% of their annual GDP on defense by 2032, up from the 2% agreed following Russia's 2022 invasion of Ukraine, a level so far achieved by 22 out of 32 member states.
In contrast to the Eurozone, GDP data for world No.6 economy the UK today topped analysts' forecasts with 0.7% quarter-on-quarter growth, the strongest in a year, thanks to consumer spending and business investment.
That data − which also ends before US President Trump's 'Liberation Day' trade tariffs, set at 10% on UK goods, as well as April's tax hike for UK employers − saw the Pound rise on the FX market to 6-week highs versus the Euro and back towards last month's test of 3-year highs versus the Dollar.
The
UK gold price in Pounds per ounce spiked down to £2353, the lowest since April 9th, before rallying £60, while Euro gold prices fell through €2800 for the first time in 5 weeks before rebounding 2.6%.
Silver meantime rallied from its own 5-week lows beneath $32 per Troy ounce, hit as fellow industrial metal copper fell and crude oil dropped hard on a forecast for rising supply and shrinking demand from intergovernmental think-tank the International Energy Agency (IEA).
Sales of autos in the US leapt last month as dealers promoted inventory bought before Trump's trade tariffs came in, new figures said Thursday, but the rest of the retail sector saw consumer spending rise just 0.1% from March.
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