Why Gold May Struggle to Shine Beyond $3,500

As of Wednesday, June 4, 2025, gold prices have captured attention following a 2% surge to $3,398 per ounce on Monday, driven by escalating tensions in the Russia-Ukraine war and U.S. President Donald Trump’s threat to double tariffs on imported steel and aluminum. The recent spike has fueled speculation about whether gold could breach the $3,500 mark this year. However, despite the current geopolitical turmoil, I remain skeptical about gold’s long-term prospects and its ability to sustain a significant upward trajectory.

The Case Against a Gold Rally

While geopolitical uncertainty often boosts demand for safe-haven assets like gold, the current rally may be short-lived. The $3,398 price reflects a knee-jerk reaction to recent events, but historical patterns suggest that such spikes tend to fade once markets stabilize. For instance, if diplomatic efforts in the Russia-Ukraine conflict gain traction or if Trump’s tariff threats fail to materialize, investor confidence could shift back to riskier assets like stocks, dampening gold’s appeal. Moreover, the U.S. economy, despite tariff-related uncertainties, shows resilience, with potential stimulus from domestic manufacturing gains that could overshadow the need for safe-haven investments.

Economic Headwinds for Gold

Gold’s performance is closely tied to macroeconomic factors, particularly U.S. monetary policy. The Federal Reserve’s anticipated interest rate decisions in 2025 could pose a significant challenge. Rising interest rates typically strengthen the U.S. dollar, which has an inverse relationship with gold prices. A stronger dollar reduces gold’s attractiveness, as it becomes more expensive for international buyers. Given the Fed’s likely focus on curbing inflation—potentially through rate hikes—gold could face downward pressure. Additionally, gold offers no yield, making it less competitive compared to interest-bearing assets like U.S. Treasury bonds, especially in a higher-rate environment.

Alternatives Outperform in the Long Run

Investors hedging against U.S. stock market risks might find better options than gold. Physical gold or gold futures, while popular, come with drawbacks. Physical gold incurs storage and insurance costs, while futures carry leverage risks that can amplify losses. In contrast, U.S. stocks, particularly in defensive sectors like utilities or consumer staples, offer dividends and growth potential. Even with tariff uncertainties, the U.S. market’s adaptability—supported by a strong tech sector and potential manufacturing boosts—suggests it could weather current storms better than gold. Between U.S. stocks and gold, the former seems a more favorable bet for 2025, given their historical resilience during economic shifts.

Risks of Overvaluation

The current gold price may already reflect an overreaction to geopolitical news. At $3,398, it’s just $102 shy of $3,500, but breaking that psychological barrier requires sustained momentum. With 644 posts on the topic and growing speculation, the market could be overheating, inviting a correction. Data-center stocks like Applied Digital (APLD), recently boosted by AI deals, highlight how growth sectors can outpace traditional safe havens. Gold’s lack of intrinsic growth potential makes it vulnerable if investor focus shifts to innovative industries.

Conclusion

While gold’s recent surge to $3,398 reflects global turmoil, its path beyond $3,500 looks uncertain. Rising interest rates, a potentially stronger dollar, and the allure of yield-bearing assets could cap its upside. For investors seeking to hedge against U.S. stock market risks, physical gold or futures may underperform compared to diversified stock portfolios. I lean toward U.S. stocks, particularly defensive plays, as a more robust choice for 2025. Gold may glitter briefly, but its shine could fade as economic fundamentals and market adaptability take center stage. Prudent investors should monitor Fed policy and geopolitical developments closely before betting on a sustained gold rally.