(Kitco News) - A massive wave of gold and silver has flooded into the U.S. as bullion banks and other market players hedge against potential tariff threats. This demand has helped drive gold and silver prices higher and created significant premiums in North American markets, but one research firm says the tariff fears are overblown.
In a research note Monday, commodity analysts at BCA Research said they have initiated a tactical short position in silver as a contrarian play to the tariff threat.
“The odds are considerable that the US will not impose import tariffs on gold, silver, platinum, and copper. There is no strong economic or political incentive for the US to impose import tariffs on these metals,” the analysts said. “Given that the latest upleg in precious metal prices has been due to expectations of US import tariffs, investors should fade the recent spike in gold, silver, copper, and platinum prices.”
The Montreal-based firm’s short position in silver comes as the precious metal saw a disappointing breakout above $34 an ounce on Friday. After hitting a high of $34.24 an ounce, silver quickly sold off to end the week below $33 an ounce.
Silver continues to recover from Friday’s selloff. As of 11:20 am ET, March silver futures traded at $33.44 an ounce, up 1.81% on the day.
Meanwhile, selling pressure on Friday pushed gold prices to initial support at $2,900 an ounce. The yellow metal has managed to hold that level and is seeing some modest buying momentum. April gold futures last traded at $2,946.70 an ounce, up 1.5% on the day.
Deciphering the disconnect in the global metals markets, analysts at BCA noted that from a trade perspective, an argument can be made for the U.S.’s tariffs on steel and aluminum as they have bigger impacts on the country’s trade balance. However, the analysts said that gold, silver, and copper have a much smaller impact on GDP.
“In the case of gold, the US produces and consumes 6% and 5% of global output, respectively. Its net exports were US$12.8 billion in 2023 – representing only 0.05% of GDP. Similarly, gold mining’s contribution to the US economy is miniscule. Therefore, tariffs on gold would not boost the US economy,” the analysts said. “On the contrary, import tariffs on gold will put US investors at a disadvantage and facilitate more gold flows to China. This is not what the US government wants to achieve.”
BCA also pointed out that if the U.S. government was going to put a tariff on gold and silver, they likely would have included them along with the tariffs on steel and aluminum.
While BCA is tactically short on silver, they remain bullish on gold, even as they see potential for a near-term correction.
“Silver’s comparatively shallower and less liquid market makes it more vulnerable to any near-term price pullback vis-à-vis gold,” the analysts said. “Any near-term weakness will present an attractive opportunity to increase cyclical and structural exposure to the yellow metal.”
