Trump Tariffs: How Trade Wars Could Send Gold Prices Soaring (or Crashing)

Trade wars and tariffs are back in the headlines, and investors are wondering what it all means for their portfolios. One asset class that often sees significant movement during times of trade tension is gold. But will Trump’s tariffs send gold prices soaring, or could they lead to a crash? Let’s delve into the complex relationship between trade wars, tariffs, and the precious metal.

Gold’s Safe-Haven Appeal

Gold has long been considered a safe-haven asset, a store of value that tends to maintain or even increase its worth during times of economic uncertainty. When trade wars erupt and global markets become volatile, investors often flock to gold as a way to protect their capital. This increased demand can drive gold prices higher.

Historical Performance: Historical data shows that gold delivers a median 12-month return of 14.3% during modern trade conflicts (1990-2024). The precious metal has outperformed equities in 78% of trade dispute periods since 1970, highlighting its defensive characteristics when global commerce faces disruption.

How Trade Wars Impact Gold Prices

Trade wars can influence gold prices through several key channels:

Increased Uncertainty: Trade wars create uncertainty about economic growth, inflation, and currency values. This uncertainty can lead investors to seek safe-haven assets like gold, driving up demand and prices.
Inflationary Pressures: Tariffs, which are taxes on imported goods, can lead to higher prices for consumers and businesses. If inflation rises, investors may turn to gold as a hedge against the erosion of purchasing power.
Currency Volatility: Trade wars can lead to currency devaluations as countries try to gain a competitive advantage. Gold is often seen as a hedge against currency risk, so its demand may increase during times of currency volatility.
Weakening Dollar: A weakening U.S. dollar can also boost gold prices, as gold is priced in dollars. A weaker dollar makes gold more affordable for buyers using other currencies, increasing demand.

The Case for Soaring Gold Prices

Given these factors, there’s a strong case to be made that Trump’s tariffs could send gold prices soaring.

Record Highs: Gold has already surged to a historic peak, hitting a record high above $3,364 an ounce in April 2025. This rally comes amid growing tensions surrounding the US-led trade war and significant weakness in the dollar.
Analyst Expectations: Some analysts are predicting even higher prices, with Goldman Sachs raising its year-end gold forecast to $3,700.
Central Bank Buying: Central banks worldwide have been adding to their gold reserves, signaling their belief in gold’s long-term value. In 2024, central banks added 1,136 metric tons to reserves—the highest annual purchase since 1967.

The Potential for a Gold Price Crash

While the outlook for gold may seem bullish, it’s important to consider the factors that could lead to a price crash.

Easing Trade Tensions: If the U.S. and its trading partners reach agreements to resolve trade disputes, the demand for safe-haven assets like gold could decrease, leading to a price decline.
Stronger Dollar: A stronger U.S. dollar could make gold more expensive for foreign buyers, reducing demand and prices.
Increased Risk Appetite: If investors become more optimistic about the global economy, they may shift their investments from safe-haven assets to riskier assets like stocks, which could lead to a gold price decline.
Liquidity Issues: “When you’re in a crisis and gold is selling off, that’s telling you you’ve got a liquidity problem,” Carlyle Group Inc.’s Jeff Currie told Bloomberg Television on Thursday.

Historical Perspective

Looking back at historical episodes of trade wars and tariffs can provide some insights into how gold might perform.

The Smoot-Hawley Tariff Act (1930): During this period, gold rose 45% in real terms as global commerce collapsed.
The 1971 Nixon Shock: This event, which ended the dollar’s convertibility to gold, triggered a 231% gold rally over four years.
The 2018-2019 US-China Trade War: Gold prices surged to record highs as tariffs disrupted global supply chains and dampened economic confidence.

Investing in Gold During Trade Wars

If you’re considering investing in gold during a trade war, here are some options to consider:

Physical Bullion: Buying gold coins or bars gives you direct ownership of the metal.
Gold ETFs: Exchange-Traded Funds (ETFs) that track the price of gold offer a convenient and liquid way to invest in gold.
Mining Stocks: Investing in companies that mine gold can provide leverage to gold prices, but it also comes with additional risks.

Conclusion

Trump’s tariffs and the resulting trade wars have created a complex environment for investors. While gold has historically performed well during times of trade tension, there are also factors that could lead to a price decline. Ultimately, the direction of gold prices will depend on how the trade war unfolds and how investors react to the changing economic landscape.

Disclaimer: This is not financial advice. Please consult with a financial advisor before making any investment decisions.