By Brian Swint

The gold rally has already reached impressive heights this year, but it may have further to run if worries about the impact of a trade war prompt more U.S. investors to pile into the precious metal.

The reason -- most of the advances so far have come from China and other emerging markets, not the U.S., according to the World Gold Council, which published its first-quarter report on demand trends on Wednesday.

The WGC report showed that demand for gold bars and coins, which are used to back financial products based on gold prices, jumped 47% in Greater China in the first quarter from the fourth quarter; it was up 12% from a year earlier. By contrast, demand in the U.S. fell 16% on the quarter and 22% on the year.

The interest from China continued into April and comes as it struggles to rejuvenate growth. Worries about trade and the continued fallout from the property market collapse at the start of the Covid-19 pandemic have made gold a popular investment in the world's second-biggest economy.

It's also an explanation for why gold has climbed to record highs over the past few years, even as U.S. stocks also made huge gains. Usually gold is seen as a haven and rises when riskier assets are performing poorly. But buyers in China and emerging markets won't have had much access to U.S. stocks, so were buying gold instead.

"Most of that emerging market demand is still there," John Reade, a strategist at the WGC, said in an interview. "This is where there's potential for gold to go further, because now there's a fear trade becoming more prevalent in Western markets. That could set all guns firing and increase gold demand."

The WGC said that central banks are still buying gold, but not as much as they have in recent quarters. And gold has retreated in the past few weeks as President Donald Trump showed signs of easing off his most stringent tariff plans. Gold now trades at about $3,300 a troy ounce, down from a peak above $3,500 reached this month.

That may not be a reversal of the trend, though. The easiest way to invest in gold is through exchange-traded funds, and the SPDR Gold Shares fund has gained more than 25% this year, handily beating the S&P 500's 5% drop.

"We're seeing decent inflows into ETFs from all regions, but China stands out," said Reade. "It's risk and uncertainty driven by the fears of tariffs and what that's going to do to manufacturing."

Write to Brian Swint at brian.swint@barrons.com

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April 30, 2025 04:55 ET (08:55 GMT)

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