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The possibility of Trump winning the election in November is prompting global investors to consider turning their attention to gold, as both gold and silver prices would benefit from tariffs and trade disputes, precious metals analysts at Heraeus said recently.
In Heraeus’ latest precious metals report, analysts noted that a second Trump term could push global investors to deploy some of their money in gold. A renewed trade war could escalate tensions between the U.S. and China and could hurt the U.S. and global economies.
While the Biden administration has retained many of Trump’s tariffs on China and raised tariffs on only a small portion of Chinese clean-tech imports, a second Trump administration could escalate the trade war like never before, according to analysts. Analysts point out that a trade war between the U.S. and China in 2018-2020 actually coincides with rising gold prices.
Prolonged trade negotiations between the US and China, coupled with tariffs and geopolitical escalation, have prompted investors to seek gold as a safe-haven asset. Global ETF holdings increased from 71 million ounces at the end of 2017 to 86 million ounces at the end of 2019, and U.S. ETF holdings increased from 37 million ounces to 44 million ounces.
On top of this, Trump, if he takes office, could replace Powell with a dovish candidate when his term ends in 2026, while possibly appointing a number of governors to the Federal Open Market Committee (FOMC) who are in favour of an accommodative monetary policy. It is conceivable that a more dovish Fed would accelerate rate cuts and loosen its grip on inflation, weakening the dollar and increasing investor demand for gold. The report reads, “Any move to manipulate the Fed’s executive power could shake market confidence in U.S. monetary policy and further boost gold prices.”
This, coupled with strong demand for the precious metal in Asian markets, particularly in China and India, where demand for gold, both from central banks and consumer retail demand, continues to climb, has played a key role in stabilizing the gold prices.
Beyond gold, Heraeus believes that the expansion of solar manufacturing in the US coupled with increased trade barriers could boost domestic demand for silver. The analysts note that in the first quarter of 2024, 11 gigawatts of solar module capacity was added in the U.S., fuelled by massive investment spurred by the Inflation Reduction Act.
Demand for silver from solar photovoltaics is expected to reach consecutive record highs of more than 230 million ounces this year, equivalent to 19 per cent of total global silver use, according to the Silver Institute. In addition, the expansion of electric vehicle charging infrastructure is a key area of focus for U.S. government subsidies, and the rollout of large-scale electric infrastructure will require the use of silver in connectors and various components.
The silver market has seen a modest uptick this week, with the spot silver price trading at $29.552 per ounce by the close of trading on Wednesday (3 July), up 0.35%.
