Lagos — The recovery in gold prices could be due to investors readjusting their portfolios following the recent turmoil in the US stock market triggered by the intensification of the trade conflict. Despite this development not being entirely unforeseen, the broad-scale selling off observed across various financial assets last week seems to have compelled gold holders to sell off their holdings either to meet margin calls elsewhere or to capitalize on profits reached at historic peaks.
The resurgence in profits for gold seems to signal a renewed focus on underlying market factors, potentially increasing interest in safe-haven assets as expectations diminish regarding the easing of trade tensions and concerns grow over the escalating impact of the conflict.
The most unfavorable situation is now turning into reality: a comprehensive trade war is unfolding due to reciprocal tariffs imposed by the United States against significant economic powers. This escalation culminated with Donald Trump announcing additional duties on Chinese goods, pushing the overall rate up to approximately 125 percent.
The rapidly escalating cycle, which goes both ways, is diminishing hopes for a pact and a diplomatic resolution to the trade dispute. As reported by The Wall Street Journal Editorial Board in an op-ed earlier this week, initiating a trade war may be simple, but halting it becomes challenging after the chain of reciprocal actions commences.
Although Trump claims numerous global leaders are eager to discuss tariff adjustments, concrete talks seem unlikely anytime soon, particularly concerning China—despite the reciprocal indications observed post-inauguration. Given that current rates exceed 100%, cutting them down halfway would still result in substantial percentages, potentially taking considerable time to achieve.
A major source of pressure on Trump continues to be influential CEOs in the U.S., whose businesses face substantial threats due to escalating trade tensions. The Journal highlights an increasing chorus among Wall Street leaders and notable personalities voicing worries over both the economic climate and the ambiguity around trade policies. This recent upheaval has brought back memories of the 2008 global financial meltdown for Wall Street professionals, as reported by the New York Times. Yet, distinguishing this present situation, according to The Times, could be the minimal expectation of governmental assistance to bail out the finance industry—a common recourse during previous crises.
In addition to concerns about the immediate economic impact of tariffs, the US economy might be clouded by uncertainty. This could deter businesses from investing in the US—a primary objective behind Trump’s tariff policies—owing to his track record of unpredictable decisions, as reported by the Washington Post. Furthermore, moving company facilities from lower-cost regions to the United States necessitates substantial time and financial resources. Such shifts would likely lead to increased costs for consumers and decreased overall economic efficiency, potentially failing to achieve the intended advantages, as noted by The Post.
Up until that point, whether we witness the realization of Trump’s vision—which seems far-fetched for many experts—of shifting manufacturing back to the U.S., along with an overall economic upturn, or agreements with other nations are secured, financial markets will stay highly unsure about both the outcomes of current policies and the direction of upcoming measures, fueled by concerns over potential economic decline. This uncertainty continues to make gold a secure investment choice under conditions of heightened risk aversion.
Amidst the ongoing debate about the trade war, its consequences, and its future trajectory, the potentially explosive geopolitical tensions in the Middle East could also reverberate in markets, deepening global uncertainty and adding to the premium that fuels gold’s gains.
A direct confrontation between the United States and Iran seems less improbable than before. Such an encounter might spark a prolonged conflict in the area, possibly endangering the world economy.
Iran has cautioned neighboring nations not to use its land and air space for hostile actions against it. Should such an action occur, Iran might retaliate against regional oil and economic assets, which could interrupt the supply of crude oil and hinder sea traffic, likely leading to higher prices.
This comes at a time when Iran has become more advanced in its nuclear program and may resort to raising the ceiling of its demands to reach a new agreement to ensure it does not withdraw from it as in the past. Therefore, achieving progress on the negotiating track will be more difficult this time, according to The Journal.
Add to this the ongoing pressure from Israel on Trump, already surrounded by hawks on Iran, to target nuclear facilities.
On the other hand, what may push both sides to refrain from direct military escalation is the current difficulties facing the US economy and its commitment to other higher-priority files, such as Taiwan and Ukraine. Furthermore, Iran will face economic collapse as the blockade tightens and if its already dilapidated energy infrastructure is targeted, bringing its exports to zero.
*Samer Hasn, Senior Market Analyst at XS.com
