US President Donald Trump signed two significant proclamations on Monday, introducing a 25% tariff on metals while ending all exclusions on steel and aluminum tariffs. This move, reminiscent of his first tenure from 2016 to 2020, has reignited fears of a global trade war. The announcement has already had a notable impact on the financial markets, particularly boosting the price of gold, which has reached a fresh record high.
Mexico, a key trading partner, emerged as the leading exporter to the United States with $466.6 billion in exports, according to the US Census Bureau. As Trump's protectionist policies are anticipated to boost inflation, investors are increasingly turning to gold as a hedge against rising prices. This precious metal has gained strong traction, building on the previous day's momentum above the $2,900 mark during the Asian session on Tuesday.
Central banks from emerging economies, including China, India, and Turkey, have been quick to increase their gold reserves. In 2022 alone, these banks added 1,136 tonnes of gold, valued at approximately $70 billion, to their reserves, according to data from the World Gold Council. This trend aligns with central banks' strategies to diversify their reserves and enhance the perceived strength of their economies and currencies.
The introduction of new tariffs by President Trump has sparked a debate among economists. There are two schools of thought regarding the use of tariffs: one that supports protectionist measures to safeguard domestic industries and another that argues such tariffs can hinder free trade and global economic growth. Nevertheless, Trump's decision has undoubtedly rekindled concerns about a global trade conflict.
In 2024, Mexico, China, and Canada accounted for 42% of total US imports. The introduction of tariffs has heightened geopolitical risks, further bolstering gold's status as a safe-haven asset. The commodity's price surged to a new high in the $2,942-2,943 area within the last hour.
The price of gold is influenced by various factors, including currency fluctuations. A strong US dollar tends to keep gold prices in check, while a weaker dollar is likely to drive prices higher. Despite potential headwinds, the path of least resistance for gold prices remains upward. This trend has supported prospects for an extension of the well-established uptrend observed over the past two months.
The Asian session swing high, around the $2,842-2,843 region, now poses an immediate strong barrier for gold prices. However, given the current geopolitical uncertainties and inflationary pressures, many investors are optimistic about gold's potential for further gains.