Thu, 04/17/2025 - 13:48
With the world in the throes of a bona fide trade war, uncertainty is at record highs. Some of the safest stocks, the Magnificent Seven tech giants, have lost an average of close to 20% since the start of the year. It's virtually the same story for crude oil, too, with Brent down 15% YTD. But there's one instrument that has been rubbing its hands all the way to the bank, quietly accumulating value while markets the world over have been in panic. Gold has had quite the time of it of late, gaining close to 30% since January and showing no signs of quitting yet. After already breaking through the $3,300 level on 16 April, the yellow metal closed the session at $3,371, more than 50% higher than its April 2024 value.
Meanwhile, Donald Trump remains firm on his 145% tariffs on Chinese goods, while China holds steadfast in its refusal to cave to the US president's pressure. And with Xi Jinping now instructing Chinese airlines not to take any new deliveries of Boeing aircraft, the risk to world trade is as great as ever. The associated threat of inflation, coupled with fears of a global recession, is also bad news for business, but as the quintessential hedge, gold could stand to benefit from a protracted negative spell. In this piece, we'll look at some of the main factors likely to impact the gold price during the rest of 2025 and beyond.
Economic pain
As with any period of intense uncertainty and disruption to the natural global order, many analysts have been highlighting the risk of recession posed by the reduction in world trade brought on by the Trump tariffs. Goldman Sachs chief executive David Solomon, for one, has warned that the chances of a US recession have increased in the wake of the trade war and that any escalation in the tensions poses "material risks" for US and global economic growth.
While US Treasury revenues might well have increased in the short term as a result of the triple-digit tariffs on China, we're already beginning to see the longer-term fallout, as the Chinese retaliate by refusing to accept previously agreed deliveries of 179 Boeing aircraft and begin to actively target the US financial services sector. Then there's the US administration's "own goal" of restrictions on Nvidia, whose H20 chip has been banned from being exported to China by means of new licence requirements. The chipmaker is now down close to 15% on the monthly chart.
Meanwhile, US Federal Reserve Chair Jerome Powell has claimed that Trump's tariffs have produced "a challenging scenario" for the central bank and could cause "at least a temporary rise in inflation", adding that "the inflationary effects could also be more persistent." This is a natural effect of tariffs, which artificially inflate the price of imported goods, but its effects could be more far-reaching than initially thought. Now, the Fed may have to reconsider its promised rate cuts in order to keep inflation under control. In light of the already weak dollar, the jury is out as to whether this is likely to be highly positive for gold, but it will definitely mean more suffering for stockholders and ordinary consumers.
No backing down
What began as the latest bombastic ploy aimed to bring the US's trading partners to the negotiating table has now descended into a full-blown trade war. In stark contrast to Trump's pre-pandemic attempts to dictate to China, this time, Xi has decided to stand and fight. Unlike other countries, China has refused to buckle and seek negotiations on US terms. Following the retaliatory tariffs of 125% imposed last week, the Chinese stated that any additional increases by the US would be "a joke" and they would simply be "ignored". The Asian powerhouse has turned its focus to non-tariff measures, including export controls of rare-earth minerals and antitrust probes into American companies, such as pharmaceutical giant DuPont and IT major Google. Beijing has also increased the number of US businesses on its so-called "unreliable entity" list, which restricts or bans firms from trading with or investing in China.
Despite the inflammatory rhetoric suggesting China will have to make the first move toward negotiation, it was Trump who blinked first following pressure from Wall Street. The US has now introduced tariff exemptions for Chinese computers, smartphones, and consumer electronics – some of China's most exported classes of products. In spite of this positive step, there's always a chance that The Donald could inflame tensions even further, and it's hard to say when a resolution to the trade war will be found. Whether that leads to more positive terms for the US remains to be seen. One thing for sure is that gold will continue to benefit as long as the tariffs are in effect and predictions north of $4,000 may not be unrealistic in a protracted, no-deal scenario.
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