Gold market turmoil as tariffs and Fed governor drive prices higher
The gold market was plunged into turmoil on Friday after Donald Trump unveiled a dovish new Federal Reserve governor and slew of new tariffs including hefty duties on kilo gold bars from Switzerland.
The precious metal rose more than one per cent through across Wednesday and Thursday – taking the spot price above $3,400 per troy ounce – after the the central banking pick and barriers to trade were confirmed.
Earlier this week, Trump unveiled Council of Economic Advisers chair Stephen Mirran as the newest Federal Reserve policymaker, in a pick to bolster support support for faster interest rate cuts at the Fed.
The White House also confirmed the final tariff rates which countries unable to secure a bilateral trade deal with the US will have to pay to export goods to the country, after culmination of the extended negotiation window set by the President.
Is gold still a safe haven asset?
Both developments carried the gold price higher, as investors priced in the increased likelihood of another round of inflation.
Those moves were compounded by Trump’s decision not to exempt one-kilo and 100-ounce gold bars in its controversial trade deal with Switzerland.
The move has the potential to upend global trade in gold bars, which largely flow between the US, London and Switzerland. The industry had assumed that gold would be exempt from the recently confirmed 39 per cent levy on Swiss exports to the US, given the yellow metal had enjoyed a carve out in previous tariff salvos.
But late on Thursday, America’s Customs Border Protection Agency confirmed to the Financial Times the fresh import taxes would apply to gold. The decision unleashed turmoil in both the gold futures market and set off major divergence in the price of gold across New York and London.
The gold prices in New York and London traditionally mirror one another. But amid fears the fresh tariffs would spark a supply squeeze in the US, gold futures on the New York market surged to touch an all-time high of $3,534/oz before paring back some of the gains.
The jump drove a record $125/oz discrepancy with the spot price in London, which was trading for as little as $3,396.
Neil Wilson, UK investor strategist at Saxo Markets, said: “Gold is up to some funny business with the US apparently slapping tariffs on one-kilo bars, which has seen New York futures surge. Rather like what happened to the copper market it’s unbalanced the usual internal structure of the physical vs futures markets.
“The NY market is used by bullion banks as a hedging tool, so we’re seeing shorts intended as hedges get blown up. For now the London spot price is the most reliable gauge of price.