Weekly Market Recap (January 24) – Trump’s Tariff Spark Precious Metals Demand Amid Market Uncertainty

Trump's Tariff Spark Precious Metals Demand Amid Market Uncertainty
Published on: Jan 23, 2025

Recently, U.S. President Donald Trump stated that companies moving production outside the U.S. would face steep tariffs. This announcement has become a catalyst for ongoing turmoil in the commodities market, including precious metals.

However, while many market participants remain focused on the potential shortages of gold and silver, Bart Melek, Global Head of Commodity Strategy at TD Securities, believes the real impact of Trump’s tariffs may not lie in physical supply disruptions but rather in triggering broader chain reactions in the market.

During Trump’s first term, the primary driver of precious metals’ price surges was the expansion of U.S. dollar credit. Gold saw an overall increase of 65%, while silver rose by 66%. Initially, gold prices stagnated, but later, as U.S.-China trade tensions escalated and fiscal stimulus waned, economic pressures intensified. This spurred the Federal Reserve to lower interest rates, catalyzing a bullish phase for precious metals. During the pandemic, the implementation of “unlimited quantitative easing (QE)” pushed gold prices to record highs.

In November 2024, Michael Michaud, President and CEO of Red Pine Exploration Inc. (TSXV: RPX, OTCQB: RDEXF) , stated in an interview with METALS 100 that the company’s flagship Wawa Gold Project had seen a significant increase in mineral resources. Additionally, the company recently completed an $11 million CAD bought-deal private placement. Red Pine Exploration owns 100% of the Wawa Gold Project, which currently hosts a National Instrument (NI) 43-101 compliant resource (as of September 30, 2024). The resource estimate comes from two deposits, namely the Jubilee Shear and the Minto Mine.

Fast forward four years, significant shifts in U.S. interest rates, debt levels, and economic fundamentals have created a new landscape. The de-dollarization effect is expected to act as a fresh catalyst to lift the baseline for precious metals prices. Trump’s policies on comprehensive tariffs, tax cuts, and immigrant expulsions are likely to create complex ripple effects across the economy, the Federal Reserve’s policies, and the gold market. Melek said that these outcomes are too complicated to simply describe as bearish or bullish, but rising uncertainty is a clear and foreseeable consequence.

Melek emphasized that the current situation can be best described as uncertain, which he called the mildest and most conservative evaluation. He pointed out that the recent surge in the so-called blowout in the EFP exchange for physical silver and gold markets clearly illustrates concerns about tariff policies.

The newly elected U.S. administration has recently threatened to impose tariffs of up to 25% on imports from Canada and Mexico while considering a 10% levy on Chinese goods, with the potential for these policies to extend globally in the future.

While Trump’s tariff policies may not directly create immediate physical supply shortages of gold or silver, they are likely to lead to increased demand for precious metals as safe-haven assets. This demand surge, according to Melek, may have an even greater impact on the precious metals market.

Furthermore, the ripple effects extend beyond general investors. Many nations may accelerate their moves to decouple from the U.S. dollar and reduce their holdings of dollar-denominated assets. As a result, precious metals may emerge as an attractive alternative to the dollar. With inventories of gold and silver remaining relatively low, there is a strong potential for long-term price increases.

In summary, President Trump’s tariff policies may create more uncertainties in the market, further bolstering the appeal of precious metals as strategic assets in this environment.

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