Tariff concerns significantly affect gold prices
Donald Trump was sworn in as the 47th president of the United States on Monday, and gold and silver were already experiencing sharp volatility on concerns that he would immediately impose large tariffs to support domestic U.S. manufacturing on his first day in office.
However, according to the Wall Street Journal, Mr. Trump issued a presidential memorandum directing federal agencies to investigate trade deficits and address unfair trade and currency policies from other countries. However, this directive does not include the imposition of new tariffs on the first day of his inauguration, which many countries have feared.
Concerns about tariffs and a global trade war have had a significant impact on the precious metals market. Last week, gold prices surged above $2,700 an ounce, while silver prices returned above $30 an ounce, reflecting the urgency in the market.
Some analysts have attributed the rise in gold and silver prices to disruptions in the global supply chain as the precious metals are moved from London to New York. Donald Trump’s tariff threats have created huge volatility in the futures and physical asset swaps market, as banks have moved large amounts of metals to the US to avoid the risk of potential tariffs.
Robert Gottlieb, a precious metals expert, said in a LinkedIn post that 7.4 million ounces of gold have been shipped to CME warehouses since November 7 due to the impact of Donald Trump's tariff threats.
Mr. Gottlieb also said liquidity in the market has dried up as banks have had to close out previously borrowed EFP positions by buying back CME February futures and selling them for immediate delivery. This has forced banks to borrow gold to sell for immediate delivery, causing gold lending rates to rise to record highs.
Some analysts say that while gold and silver supplies remain plentiful, they are not in the right places or in the right formats, a disruption similar to 2020, when the COVID-19 pandemic disrupted global supply chains.
Nicky Shiels, Head of Metals Research and Strategy at MKS PAMP, commented that the EFP premium was trading above its intrinsic value and the intraday volatility was staggering.
“The EFP premium is inherently a very low volatility, reliable trade and has only been unbalanced once when shipping lanes were cut during COVID. It is remarkable that EFP and futures have held up well despite the balancing/profit-taking from the indices,” she commented.
Daniel Ghali, Senior Commodity Strategist at TD Securities, noted that silver is particularly sensitive to EFP volatility as supplies of the metal in London warehouses have fallen to record lows.
While Donald Trump is not ready to start a global trade war with tariffs, uncertainty will continue to dominate the market, Ghali said. If EFP rates do not fall, the shortage in London warehouses may not be easily reversed, keeping lending rates and spot prices high.
Tariff suspension could help stabilize markets
Some analysts say the US is suffering from a severe silver shortage and is dependent on Mexico and Canada - the two countries that Mr Trump plans to impose a 25% tariff on. Mexico accounts for 25% of global silver production, while Canada accounts for 10%.
Ole Hansen, head of commodity strategy at Saxo Bank, said metals such as gold, silver and copper are likely to be exempted from Mr Trump's tariffs, which would help stabilize the market.
However, he added that global geopolitical uncertainty will continue to fuel investment demand for safe-haven assets.
“The Trump administration’s unpredictability, rising debt burden and persistent inflation are factors that are likely to support investment in precious metals in the near future,” said Hansen.
