Gold prices shot up to all-time highs. Investors are reacting to the rising flames from the pernicious trade war between the United States and China. On Wednesday gold spot prices reached $3,357.40 (£2,540) per ounce. That’s a staggering 30% jump just since the beginning of this year. Analysts are already making historical comparisons, saying that this year’s gold rally looks like the dramatic price surges seen during the Iranian Revolution of late 1979. During that time, gold prices skyrocketed by almost 120%.
Additionally, the Trump administration has imposed high tariffs on hundreds of billions in Chinese imports. Since the president took office in January of this year, these taxes have increased a whopping 145%. In response, China has imposed a 125% tariff on U.S. exports. These measures are paper tigers unless they are part of a broader strategy. Their hope is to restore manufacturing jobs in the United States and create billions of dollars in tax revenue.
Nevertheless, despite these good intentions, passions are flaring about the economic impact of these proposed tariffs. Jerome Powell, chair of the U.S. central bank, has been sending out alarm bells. He’s concerned that President Trump’s tariff policies will be a drag on economic growth and raise prices for consumers. Recent weeks have witnessed the announcement of surprise tariffs, thus stoking worries about inflation even further. Consequently, a lot of investors are piling into safe-haven assets such as gold.
Stephen Innes from SPI Asset Management remarked on the current market sentiment surrounding gold, stating, “Gold is in ‘full lifeboat mode’ as it has become ‘the most crowded trade on the planet.’” Investors are becoming increasingly concerned about the instability brought on by trade policy. So many of them are now focusing their efforts on moving into “real” assets to ride out this uncertainty.
Many agree with stock analyst Jesper Koll, who says that will not change any time soon. “It’s increasingly clear that Team Trump’s ‘move fast and break things’ approach to policy making will not change,” he stated. There are broad implications of these tariffs that extend well beyond economic disruption. Another interpretation is that investors are moving out of riskier assets, including oil, into less risky commodities, like gold.
With tensions further escalating in the trade conflict, players in the marketplace are on high alert watching to see what comes next. These tariff increases, likely the highest-ever enacted in U.S. history, will hinder if not wholly derail U.S. economic growth. They will inflate costs on consumers, adding to their burdens and making it more difficult for American workers and businesses to compete.