Record inflows have coincided with Trump reiterating his pledge to impose hefty tariffs on Canada and Mexico
Gold prices are continuing their upward trajectory towards the $3,000 mark after hitting new record highs at the beginning of the week.
Thanks to the largest weekly influx in exchange-traded fund (ETF) inflows since March 2022, spot gold reached an all-time high of $2,956.15 on Monday and exceeded the $2,959 mark in early morning trading on Tuesday.
The run on gold is being widely attributed to an increasingly uncertain U.S. economic climate, with President Donald Trump threatening to impose an array of tariffs on imports, stoking concerns surrounding inflation and disturbance to domestic businesses.
On Monday, the newly-elected president confirmed in a White House press conference that tariffs on imports from Canada and Mexico “are going forward on time, on schedule”. The proposals would see a 25% levy placed on products arriving from the two nations, in adddition to 10% on Canadian energy.
Trump has concedced that “prices could go up” as a result of the tariffs, but also argued that the impact would be “somewhat short-term”, and that “jobs will go up tremendously”.
However, economists have expressed concern surrounding the impact on U.S. consumers, and warn that Trump’s campaign of tariffs may ignite a global trade war with the potential to stifle global economic growth.
“Unless the Trump administration offers numerous exemptions to US importers of steel and aluminium, US consumers can expect increased prices and production shortages,” Michale Stanitis, trade expert at the American University told Al Jazeera.
“We will witness a challenging transition in the global economy as foreign producers determine how best to allocate resources.”
The Tax Foundation, a Washington DC-based economic think tank, also estimates that U.S. GDP slumped by 0.2% as a direct consequence of tariffs imposed by trump during his first presidential term in 2018 and 2019.
Commodities: A hedge against uncertainty?
It’s clearly no coincidence, then, that gold inflows are hitting new heights just as Trump reiterates his intention to impose hefty tariffs on Canada and Mexico.
This is a well-observed phenomenon – as economic uncertainty deepens, gold tends to act as a safe haven.
This is why, for instance, there is a clear correlation between interest rates and gold prices. During the Fed’s last three rate-cutting cycles, the price of gold rose by 57%, 235% and 69% respectively.
The same thing, arguably, is being observed right now. And according to Jim Wyckoff, senior market analyst at Kitco Metals, this trend is likely to continue.
“Investors believe that in the coming weeks and months or longer than that gold prices are going to continue to appreciate,” Wyckoff told Reuters.
As long as the market uncertainty persists, people will continue to invest in gold, and its trajectory will remain “sideways to higher”, he added.
