The global economy is once again at a crossroads as trade tensions escalate between the United States and its major trading partners. The imposition of tariffs by the US on key economies, including the European Union (EU) and China, has sparked fears of a prolonged trade war, triggering retaliatory measures that further strain global trade relations. As uncertainty mounts, investors have increasingly turned to precious metals like gold and silver, as a safe-haven asset to hedge against potential economic downturns and market volatility. Unlike equities and fiat currencies, which can be vulnerable to geopolitical risks and inflationary pressures, gold and silver tend to retain their value, making them attractive in times of crisis. The spot gold price breached the psychological level of $3,000 per troy ounce, hitting an all-time record of $3,086 a troy ounce, on a resilient rally fueled by safe-haven interest. Similarly, the spot silver price rallied to monthly highs, hovering steadily around $34 a troy ounce.
Donald Trump’s second presidential term has kicked off with a flurry of action, sending global market sentiments into a tailspin. As investors worldwide scrambled to adopt a risk-averse approach, global equities took a nosedive. The United Sates imposed tariffs on Canada and Mexico, which came into effect from 4 March 2025. The tariffs on Canada include a 25% tariff on non-energy goods and a 10% tariff on energy and potash exports, accounting for approximately $253 billion worth of trade. Meanwhile, the tariffs on Mexico include a 25% tariff on all goods, affecting approximately $236 billion worth of trade between the two nations. Collectively, the tariffs on America’s closest neighbors could lead to higher prices for US consumers and potentially disrupt supply chains.
Similarly, the US imposed 10% punitive tariffs on China on 4th February, which were later increased to 20% on 4th March. These tariffs target approximately $430 billion worth of Chinese goods. In response, China implemented April 2025 I Geojit Insights I 15 additional tariffs ranging from 10% to 15% on specific US imports, effective 10th March. Furthermore, China introduced a series of export restrictions targeting designated US entities. The trade dispute between the world’s largest economies is expected to have an adverse impact on their industries, dampening demand and disrupting supply chains.
The 25% tariffs on steel and aluminum came to effect from 12th March with no exemptions, and the 25% tariffs on automotive imports were implemented to support domestic automotive manufacturers, and reciprocal tariffs are expected to be imposed on 2nd April.
Apart from the tariffs on steel and aluminium, the US has proposed imposing 25% tariffs on European Union goods, which would impact approximately $598 billion worth of trade, and is likely to escalate tensions between the US and the EU, potentially leading to retaliatory measures.
With China and the EU implementing their own retaliatory tariffs, the risk of a full-scale trade war looms large. Such conflicts often lead to slower economic growth, higher inflation, and disruptions in global supply chains, prompting investors to seek assets that can withstand economic instability.
Historically, precious metals have been a preferred hedge during periods of uncertainty. The growing fears of a global economic slowdown, exacerbated by trade frictions, have reinforced investor demand for gold and silver, pushing prices higher. The absence of any clear resolution to these trade disputes has only strengthened the appeal of bullion as a store of value.
In the meantime, the other commodities told a different story, each reacting distinctively to tariff threats. Early in the year, stricter sanctions on Russian and Iranian oil exports led to a surge in crude oil prices. Market participants feared potential supply disruptions, prompting a bullish sentiment that pushed prices higher. With limited alternative supplies available in the short term, traders and refiners rushed to secure oil, further fueling the rally. However, the price momentum soon reversed as economic worries started to dominate. The imposition of new tariffs, particularly between the US and China, raised concerns about slowing global trade and economic growth. A weaker global economy would translate to lower oil demand, putting downward pressure on prices.
Despite the trade tensions and fears of economic slowdown, aluminium prices have remained relatively stable. Fears of supply tightness stemming from the European Union’s proposed ban on Russian aluminium imports, along with the US’ 25% tariff on aluminium products, has limited the downward pressure in prices.
Copper prices have been more volatile, with the COMEX market reacting sharply to tariff threats. In March, LME copper prices surged to above $10,000 per metric ton as the differential between COMEX and LME widened due to trade policy uncertainties. The divergence between these two markets has led to speculative buying, with investors positioning themselves based on shifting tariff expectations and trade dynamics.
The scale of uncertainty that remains in the commodity market in the wake of escalating trade tensions is large. While aluminium prices may experience periods of stability due to supply constraints, copper is likely to remain volatile as speculative activity and tariff-related uncertainties persist. In the crude oil market, price movements will largely hinge on global demand-supply dynamics, with a potential economic slowdown due to escalating global trade war adding further pressure. Meanwhile, precious metals are expected to maintain a firm footing as long as trade related uncertainties drive safe-haven demand.
