(Kitco News) - It’s not surprising that gold has surged to record highs above $2,800 as the world braces for a new trade war in less than 24 hours.
On Saturday, President Donald Trump will impose 25% tariffs on goods from Canada and Mexico and 10% on goods from China. In response, Canada and Mexico have prepared lists of retaliatory tariffs on American goods. Some provinces in Canada have also threatened to halt energy exports to the U.S. due to Trump’s actions and rhetoric.
A global trade war would not only drive inflation higher and weaken global economic growth but also heighten geopolitical uncertainty. Investors are increasingly recognizing that this is an ideal environment for gold — it carries no third-party risk and serves as a hedge against inflation.
Even if the trade war ends fairly quickly, questions remain about what will happen next. Analysts have noted that, based on evidence from his first term, Trump will continue to be a disruptive force, meaning uncertainty is unlikely to subside anytime soon.
Beyond the geopolitical chaos, gold also proved its value as an essential diversification tool this week. Its move to record highs on Friday followed a turbulent start to the week.
On Monday, North American equity markets took a significant hit as global investors offloaded tech and AI-related stocks after China announced a cheaper artificial intelligence model, challenging the dominance of U.S. technology. The S&P 500 saw an intraday decline of more than 4%.
Although gold was initially caught in a liquidity trap and prices dropped, the precious metal still outperformed equity markets. Investors are now reassessing the tech sector and AI stocks, while higher inflation and weak economic growth do not bode well for company earnings, which started the year at historically high valuations.
Even before reaching fresh all-time highs, gold’s performance was already attracting mainstream attention. This week, State Street Global Advisors identified gold’s expected move above $3,000 an ounce as one of their top three surprises for investors this year.
“As stocks and bonds suffered double-digit losses, gold demonstrated its diversification power by maintaining its value throughout the year… Geopolitical risks and structural transitions in monetary and fiscal policies should also boost the prospects for gold,” said Michael Arone, Chief Investment Strategist at SSGA, in a report.
Meanwhile, the London Bullion Market Association published its annual forecast, suggesting that $3,000 could be just the beginning. In a survey of 30 analysts, 20 predicted that gold prices will exceed $3,000 this year.
The survey projects an average price of $2,736.69 — a 14.7% increase from the 2024 average price.
Analysts are even more optimistic about silver. The survey forecasts an average price of $32.86, which is 16% higher than the 2024 average.
While chaos is expected to dominate markets, there are tools available to protect your investments. That’s it for this week — have a great weekend!
Neils Christensen
Neils Christensen has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press. Neils can be contacted at: 1 866 925 4826 ext. 1526 nchristensen at kitco.com @KitcoNewsNOW
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