Gold soars, capital flows to Europe

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 $3,500/troy ounce for the first time ever on Tuesday, up from $2,658 in January following President Donald Trump’s attacks on Federal Reserve Chair Jerome Powell, which have fueled 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—have 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 International Monetary Fund.

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 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 Dollar Index (DAX), a measure of the greenback 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.

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 $10.62 billion last week, while European equity funds saw inflows of $11.13 billion, according to Lipper data.

“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.