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. Although the development wasn’t entirely unforeseen, the broad-scale selling off observed across various 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 after reaching all-time peaks.
The resurgence in profits for gold seems to signal a renewed focus on market basics, potentially increasing the appeal of safe-haven assets as expectations diminish for an easing of tensions in the trade conflict and concerns grow over the harm caused by further escalation.
The most adverse situation is now turning into reality: a comprehensive trade war emerges due to reciprocal tariffs imposed by the United States against key global economies. This escalation culminated with Donald Trump announcing additional duties on Chinese goods, pushing the aggregate tariff rate up to approximately 125 percent.
The rapidly escalating actions and counteractions are diminishing hopes for an agreement 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, yet halting it becomes challenging once a chain of reciprocal measures comes into play.
Although President Trump claims that many international heads of state are eager to discuss tariff adjustments, concrete talks seem unlikely anytime soon, particularly with China, regardless of the reciprocal indications observed since he took office. Given that current duties exceed 100%, it could take considerable time for these rates to be reduced by even fifty percent—a figure that remains significantly high.
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 reports an increase in worries expressed by leading Wall Street professionals and notable individuals regarding both the uncertain economic future and the volatile nature of trade policies. This unrest has brought back memories for Wall Street financiers and brokers of the 2008 worldwide financial meltdown, notes the New York Times. Yet, one potential difference highlighted by The Times could be the limited expectation of governmental assistance to bail out the finance industry, unlike previous occurrences.
In addition to concerns about the immediate economic impact of tariffs, the US economy might be clouded by uncertainty. This could discourage businesses from investing in the US—a primary aim of Trump’s tariff policy—owing to Trump’s track record of unpredictable decisions, as reported by the Washington Post. Furthermore, moving company facilities from lower-cost regions to the United States involves considerable time and financial outlay. It would also likely lead to increased costs for consumers and decreased overall economic efficiency, potentially failing to deliver the anticipated advantages, according to The Post.
Up until that point, whether we witness the fulfillment of Trump’s vision—which seems far-fetched according to many experts—of shifting manufacturing back to the U.S. along with an overall economic upturn, or successful negotiations with other nations occur, financial markets will continue to exhibit significant uncertainty about both the outcomes of current policies and the implications of upcoming measures, fueled by concerns over potential economic downturns. This situation maintains gold's status as a secure investment during these times marked by heightened risk aversion.
As the debate surrounding the trade war continues, along with discussions of its outcomes and future direction, the heightened geopolitical strains in the Middle East might echo through financial markets. This would increase worldwide uncertainty and contribute to the premium driving up gold prices.
A direct confrontation between the United States and Iran doesn't appear as improbable now as it previously seemed. Such an encounter might spark a prolonged conflict in the area, possibly endangering the worldwide economy.
Iran has cautioned neighboring nations not to use its land and air space for actions aimed at attacking it. Should such a scenario occur, Iran might respond by targeting regional oil and economic assets, which could lead to disruptions in crude oil shipments and marine traffic, thereby exacerbating cost hikes.
This occurs as Iran has progressed further in its nuclear activities and might choose to elevate the level of its requirements to secure a fresh deal aimed at preventing potential withdrawals similar to those seen previously. Consequently, making headway in the talks could prove even tougher now, as stated in The Journal.
Include also the continuous pressure exerted by Israel on Trump, who is already encircled by hardliners regarding Iran, to strike at nuclear sites.
Conversely, factors that might discourage either side from engaging directly in military confrontation include the present challenges confronting the U.S. economy and its dedication to more pressing issues like Taiwan and Ukraine. Additionally, should Iran’s deteriorating energy sector be further damaged amid intensifying sanctions, leading to a complete halt in its exports, the country could experience an economic meltdown.
Samer Hasn, who serves as a Senior Market Analyst at XS.com,