Gold is seeing a massive uptick in price, thanks to President Donald Trump’s tariff policy. Early Tuesday, gold futures reportedly hit a new record price of $3,177 per ounce, before falling back a little. But they are still up more than 18% from the start of the year — while the S&P 500 is down more than 4% over the same period.
Tariffs implemented by the Trump administration can have a significant impact on gold prices, primarily by influencing inflation, currency fluctuations, market volatility, economic growth, and interest rates. Here’s how each of these factors plays a role:
Influence on inflation and gold demand
When the U.S. imposes tariffs on imports, the cost of those goods often rises. This can contribute to higher overall prices in the economy, a situation known as inflation. Gold is traditionally seen as a hedge against inflation, meaning that when inflation increases, investors tend to turn to gold as a store of value. As a result, the rising inflation caused by tariffs could drive up demand for gold, thus increasing its price.
READ: The perils of Trump’s proposed tariff trade war (February 6, 2025)
Currency movements and gold’s appeal
Tariffs can also have a profound effect on the value of the U.S. dollar. For instance, if tariffs result in economic slowdowns or trade imbalances, the dollar might weaken. A weaker dollar makes gold more attractive for foreign investors, as it becomes cheaper to buy in their local currencies. On the other hand, if the tariffs are seen as beneficial for U.S. manufacturers, leading to a stronger dollar, gold might lose some of its appeal, potentially causing a dip in its price.
Economic growth concerns and gold’s role
If tariffs are perceived as harmful to economic growth—especially if they lead to a slowdown in global trade—gold becomes a more attractive asset. Economic downturns or recessions often lead people to look for secure investments, and gold fits the bill as a tangible asset that can hold its value. Therefore, if tariffs contribute to economic fears, gold prices can rise as people hedge against a weaker economy.
Interest rates and their effect on gold
Lastly, tariffs can affect the interest rate environment. If tariffs lead to rising inflation, the Federal Reserve might raise interest rates to try and control it. Higher interest rates typically make gold less appealing, as the opportunity cost of holding gold (which doesn’t earn interest) increases.
However, if tariffs result in slower economic growth and the Fed responds by lowering interest rates, it could actually support higher gold prices, as lower interest rates make gold more attractive.
Investor flight to gold amid market turmoil
When tariffs are imposed, especially during periods of trade tensions or economic uncertainty, it can lead to market turmoil. This uncertainty often prompts investors to shift their capital into gold, a traditional safe asset during times of instability. As investors seek stability and a hedge against market risks, the demand for gold tends to increase, driving up its price.
READ: Canada, China, Mexico, South Korea, India among 10 countries to be hit by Trump’s tariffs on aluminum, steel (February 11, 2025)
Tariffs affect gold prices primarily through their influence on inflation, the value of the U.S. dollar, economic growth prospects, and market sentiment. Depending on how tariffs affect the economy and the financial environment, they can either push gold prices up or down.
Some analysts expect the price to keep climbing. Michael Widmer, head of metals research at Bank of America, last week published a report projecting that the price of gold would soar to $3,500 per ounce over the next 18 months.