By Ahmad Assiri, Research Strategist at Pepperstone
Renewed threats by the US president to impose tariffs of 10%, with the possibility of raising them to 25% at a later stage, have brought the global trade tensions to the forefront, but this time within a broader geopolitical context that goes beyond the trade balance to touch on issues of pure influence as the case for Greenland and the US presence in the Arctic. On the European side, France seems the most hardline voice, with calls to consider the use of the EU’s Anti Coercion Instrument as Brussels prepares to reactivate a list of retaliatory tariffs worth around €93 billion on US goods.
Precious metals stand out as the biggest beneficiaries of rising geopolitical uncertainty and the return of political risks. Gold in particular continues to move within a upward trend hovering around the $4700 per ounce threshold, supported by a mix of increasing hedging demand, declining risk appetite in equity markets and macro factors most notably monetary expectations and a weaker dollar over the medium term. The renewed trade tension adds an additional support for gold which is viewed as a hedging tool against geopolitical fragmentation and the global rise of protectionist tendencies.
$5,000 per ounce do not appear to be overly optimistic scenario but rather a logical medium-term target roughly 7% away and firmly on the table especially if the language of playing cards persists or expands geographically or politically. Silver, in turn, reflects a similar advance, albeit accompanied by higher sensitivity to volatility, given its nature.
Precious metals are expected to remain the clearest expression of the prevailing defensive mood in markets until a negotiation path become clearer. The broader picture does not necessarily point to broad based sell offs similar to episodes seen last year, but rather to an extended phase of political push and pull, in which gold stands as the most prominent near-term winner from rising uncertainty.