Precious Metals Breathe a Sigh of Relief as Trump Signals Delay in Tariffs

The gold and silver markets may soon breathe a sigh of relief as the U.S. celebrates Martin Luther King Jr. Day, coinciding with the imminent inauguration of Donald Trump as America’s 47th president. Speculation had heightened over potential tariffs that Trump might impose on his first day in office, targeting foreign goods to bolster American manufacturing. However, recent reports indicate that the new administration may delay such actions, allowing precious metals a momentary respite from extreme volatility.

Trump’s Presidential Memo and Market Reactions

According to the Wall Street Journal, Trump issued a presidential memo directing federal agencies to investigate U.S. trade deficits and the unfair trade and currency policies of other nations. Importantly, the memo signifies a hiatus on imposing new tariffs immediately, easing fears that had gripped the market. This apprehension stemmed from concerns about a global trade war, which pushed gold prices above $2,700 an ounce and silver prices above $30 an ounce last week.

With the potential for tariffs looming large, analysts revealed that significant volatility in the Exchange Futures for Physical (EFP) markets resulted in aggressive movements of bullion to American custody. Robert Gottlieb, a precious metals industry expert, shared insights through a LinkedIn post, highlighting that approximately 7.4 million ounces of gold have been routed to CME warehouses since November 7, a clear indicator that traders were reacting to the uncertainty surrounding tariffs. The subsequent tightening of market liquidity spurred bullion banks into closing out borrowed EFP positions by balancing February CME futures against spot sales, resulting in historically high lease rates for gold.

Market Dislocation and Supply Chain Concerns

Analysts have noted that while gold and silver supplies remain plentiful, the distribution and logistics of these metals are misaligned. This situation mirrors the disruptions experienced during the COVID-19 pandemic in 2020, raising concerns over how swiftly the market can return to equilibrium. Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, remarked on the extraordinary intraday volatility and premiums in the EFP sector that have deviated significantly from expected fair values.

On a further note, Daniel Ghali, Senior Commodity Strategist at TD Securities, pointed out that the volatility in the EFP market has a pronounced effect on silver, with stock levels in London vaults plummeting to unprecedented lows. Although Trump’s administration may ease immediate tariff pressures, Ghali contended that uncertainty would loom over the marketplace, maintaining tight market conditions for silver as UK-housed assets diminish.

Implications of Delayed Tariffs on Precious Metals

Analysts remain cautiously optimitic that Trump’s deferment of imposing tariffs will contribute to a normalization of the precious metals market. While speculation lingers about potential tariffs, particularly concerning the U.S.’s significant reliance on silver from Mexico and Canada—nations that produce approximately 35% of the world’s silver—industry professionals suggest that metals like gold and silver may largely remain insulated from these tariff policies.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, predicted that metals including gold, silver, and copper would likely be exempt from any tariffs under Trump’s administration. He posited that geopolitical instability, a mounting debt burden, and persistent inflation would continue to fuel safe-haven demand for investment metals, regardless of policy adjustments.

Conclusion

As Donald Trump prepares to take office, the precious metals market is settling into a cautious rhythm, aided by his decision to delay potential tariffs. While concerns linger around supply chain logistics and overall market volatility, the signal of a tempered approach offers a glimmer of hope for gold and silver investors. With the global economic landscape continuously evolving, market participants will be keenly observing both domestic and international developments for additional cues on how future tariff announcements could shape the market outlook.