Precious Metals Breathe a Sigh of Relief: Implications of Trump’s Delay in Tariffs
As the U.S. markets closed in observance of Martin Luther King Jr. Day, the precious metals sector appears to have tempered some of its anxiety. With Donald Trump set to be sworn in as the 47th President of the United States, the anticipated tariffs that stoked fear across the commodities market now seem to be postponed. Rather than immediately imposing tariffs designed to bolster American manufacturing, Trump has issued a memo directing federal agencies to investigate trade deficits and identify unfair practices by other nations, providing some respite for gold and silver investors.
Market Volatility Amid Tariff Fears
The anticipation surrounding potential tariffs had already sparked extreme volatility in the gold and silver markets. In the lead-up to Trump’s inauguration, gold prices surged above $2,700 an ounce, while silver breached the $30 mark. Analysts attribute this uptick to a dislocation in the global supply chain, particularly as metals navigated from London to New York in the face of looming tariffs.
This uncertainty has poured significant stress into the Exchange Futures for Physical (EFP) markets, leading bullion banks to shuffle large volumes of gold to U.S. warehouses in anticipation of potential tax implications. Notably, Robert Gottlieb, a Precious Metals Industry Expert, reported that since November 7, approximately 7.4 million ounces of gold have been transferred to CME warehouses, illustrating the heightened activity spurred by tariff fears.
Liquidity Tightening and Lease Rates Surge
The ramifications of Trump’s tariff threats have not only affected market prices but also market liquidity. As banks rushed to close out borrowed EFP positions, they have simultaneously bought back February CME futures while selling spot to balance their positions. This frantic activity has culminated in record-high lease rates for gold, driven by the necessity for bullion banks to borrow the gold they had previously sold.
Ample supplies of gold and silver exist; however, they might not be optimally positioned or suited for immediate trading. Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, remarked on the peculiarities of EFP premiums trading above their fair value, indicating a market dislocation reminiscent of the COVID-driven chaos in 2020. Shiels outlined that “the EFP is supposed to be a very low-volatility, trusted & reliable carry trade/spread,” highlighting that its deviations indicate a deeper underlying issue within the market.
The Evolving Landscape for Silver
As for silver, it too remains intricately linked to EFP volatility, particularly given that supply in London vaults has declined to critical lows. Daniel Ghali, Senior Commodity Strategist at TD Securities, detailed that the normalization of EFP dynamics could potentially offer some stability, but a lack of clarity may ensure that silver’s precarious position persists, exacerbating the pressures on supply and price.
Prospects of Tariffs and Systemic Supply Issues
While analysts generally agree that Trump’s decision to delay tariffs could ease some market tensions, the long-term implications are still under scrutiny. America’s dependency on imports for silver from Mexico and Canada—who produce 25% and 10% of global outputs respectively—poses a complicated dilemma if tariffs come back into focus.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, anticipates that essential metals such as gold, silver, and copper will remain exempt from tariffs, potentially normalizing the market environment. Nevertheless, he cautioned that ongoing geopolitical uncertainties, alongside rising debt and persistent inflation, are primed to sustain interest in safe-haven assets like precious metals.
Conclusion: Navigating the Complexities
The recent developments surrounding Trump’s tariffs present a momentary reprieve for the precious metals market, yet investors must remain vigilant. The dislocation of supply chains, the tightening liquidity, and heightened lease rates all indicate that while immediate volatility may settle, broader systemic issues persist. Navigating this complexity requires a grounded understanding of both commodity fundamentals and global economic shifts.
For serious investors, now is the time to carefully consider the implications of these changes, observe market signals, and position themselves accordingly within the evolving landscape of commodities and resource-driven stocks.
