News & Insights

A Golden Moment

Gold prices are up nearly 30% year-to-date, rising above $3,500 mid-day on April 21 for the first time, significantly outperforming most other asset classes. Rising inflation fears, geopolitical uncertainty, a falling dollar, robust central bank buying and pursuit of alternative “safe haven” assets are driving gold’s rise.

Often described as a “refuge of the cautious,” gold tends to perform well in periods of market turmoil. Long-term inflation expectations have remained stable, while fears of a global slowdown are rising amid concerns of an impending global trade war. In addition, global public debt has surged and surpassed $100 trillion as governments around the world fail to rein in massive fiscal deficits.

Geopolitical uncertainty and currency manipulation may also be driving the surge in central bank gold purchases in Poland, India and China. The US has seen the largest four-week inflow of gold ever recorded recently, as billions of dollars of gold were imported to the New York COMEX from Switzerland and the London Bullion Market Association.

Gold vs S&P 500 Performance Year-to-Date

Source: Bloomberg

Central Banks’ Record Demand for Gold

Source: Yahoo! Finance, Metals Focus, Refinitiv GFMS, ICE Benchmark Administration, World Gold Council

Europe: Optimism Outpaces Reality

Since the announcement of reciprocal tariffs from the United States, investment capital began flowing out of the U.S., and the European markets have become a darling of the investor set. Leaders across the EU have announced countervailing tariffs, and plans to lift constitutionally mandated spending caps, turning on the spigots for defense and infrastructure spending. Unfortunately, debt-funded military and infrastructure spending represents short-term stimulus, but isn’t likely to bring about real, long-term sustainable growth for the world’s second largest economic bloc.

The outgoing German parliament’s 11th-hour approval of a constitutional change allowing unlimited defense spending and €500 billion on infrastructure led many analysts to upgrade their growth outlook for Germany and, by extension, much of the Eurozone. While this action has boosted equity markets and survey-based growth expectations, hard economic data remains bleak.

Spending on defense and infrastructure, with much of the latter earmarked for the green transition to win support from the Green Party, will do little to lower the high electricity costs hobbling Germany’s industrial base. We have little confidence that the incoming coalition government will be able to muster the will and votes to enact the kinds of structural reforms needed to boost Germany’s (and the EU’s) anemic productivity growth and weak private investment, both of which significantly lag the U.S. Unless and until the EU finds a way to incentivize structural reform, Europe’s long-term growth story is likely to fall behind its peers.

The latest tariff proposals and follow-on effects will make a recovery even more difficult. Manufacturing is a large portion of the German economy and a slowdown in trade with the U.S. will cripple growth. Audi has already announced a pause of its exports to America. The euro has also strengthened substantially since the beginning of the year, making European exports more expensive and less competitive in global markets. Forecasts now expect exports, industrial production and private investment to contract through 2025.

Reports of early successful tariff negotiations may benefit traditional NATO allies as the U.S. isolates China, opening an opportunity for a broad agreement between the two Western economic powers and lessening dependency on China. A shift of goods purchases from China to Europe would be a huge boon to the Europeans.

Deutsche Bank Growth & Fiscal Forecasts

Source: Deutsche Bank Research

German Economic Data Forecasts (Year-End 2025)

Source: Bloomberg

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This commentary is as of May 5, 2025, for informational purposes only and is not investment advice, a solicitation, an offer to buy or sell, or a recommendation of any security to any person. Managers’ opinions, beliefs and/or thoughts are as of the date given and are subject to change without notice. The information presented in this commentary was obtained from sources and data considered to be reliable, but its accuracy and completeness is not guaranteed. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not indicators or guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification strategies do not ensure a profit and cannot protect against losses in a declining market. All indices are unmanaged, and investors cannot invest directly into an index. You should not assume that an investment in the securities or investment strategies identified was or will be profitable.

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