Precious Metals Breathe A Sigh Of Relief As Trump Signals Delay In Tariffs Ahead Of Inauguration

(January 19, 2025 - Neils Christensen, Kitco News)

(Kitco News) - Gold and silver markets could start to breathe a little easier as U.S. markets are closed in recognition of Martin Luther King Jr. Day, and it appears that soon-to-be President Donald Trump could delay the implementation of tariffs.

Trump will be sworn in Monday as America’s 47th president and gold and silver have seen extreme volatility in anticipation that he would enact significant tariffs to support American manufacturing on day one.

However, according to the Wall Street Journal, Trump issued a presidential memo directing federal agencies to investigate trade deficits and address unfair trade and currency policies by other nations. The directive, however, stops short of imposing new tariffs on his first day in office, as many nations feared.

The fear of tariffs and a global trade war has been palpable in the precious metals market. The urgency and fear around potential tariffs were witnessed last week as gold prices pushed above $2,700 an ounce and silver prices rallied back above $30 an ounce.

Some analysts note that gold and silver prices have rallied because of a dislocation in the global supply chain as the precious metals move from London to New York. Trump’s tariff threats have created significant volatility in the Exchange Futures for Physical (EFP) markets, as bullion banks have been moving bullion to America ahead of any potential tariffs.

Robert Gottlieb, a Precious Metals Industry Expert, said in a LinkedIn post that because of Trump’s tariff threats, 7.4 million ounces of gold have been shipped to CME warehouses since Nov. 7.

At the same time, he said that market liquidity has been tightening as banks have been closing out their borrowed EFP positions by buying back February CME futures and selling spot. He also said that bullion banks have had to borrow the gold they sold spot, which has pushed lease rates to record highs.

Analysts note that while there are ample supplies of gold and silver, they may not be in the right place or in the right format. This dislocation was similar to 2020 when the global COVID pandemic roiled global supply chains.

Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, said in a note last week that EFP premiums have been trading above fair value and that the intraday volatility has been extraordinary.

“The EFP is supposed to be a very low-volatility, trusted & reliable carry trade/spread; it’s the hedge to general precious business activity and only moved this out of sync once (when transportation lines were literally cut in COVID). What is also extraordinary is that the EFP & futures remained bid in the face of index rebalancing/selling,” she said.

Daniel Ghali, Senior Commodity Strategist at TD Securities, noted that silver is particularly sensitive to EFP volatility as the supply of metal in London vaults has dropped to record lows.

While Trump may not be ready to launch a global trade war with tariffs, Ghali said that the uncertainty will continue to dominate the marketplace.

“If the EFP normalizes without sufficiently collapsing into negative territory, the drain on London vaults will not easily reverse, keeping forwards tight and lease rates elevated, which can plausibly ultimately result in outright purchases of physical silver in support to flat prices,” he said. “Conversely, a lack of clarity could also keep traders guessing, reinforcing the ongoing drain in London vaults towards critically low levels and further reinforcing the associated price action.”

According to some analysts, Trump’s delay in imposing tariffs for now should help to normalize the market.

Many analysts have speculated that it’s unlikely Trump’s tariffs will impact precious metals. The U.S. has a significant silver deficit and relies on Mexico and Canada for the metal, two nations he has threatened with 25% tariffs. Mexico produces 25% of the world’s silver, while Canadian production represents 10% of global supply.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said he expects metals like gold, silver, and copper to be exempt from Trump’s tariffs, which will normalize markets.

However, he added that global geopolitical uncertainty will continue to support investment in safe-haven demand.

“An incoming Trump administration with its inherent unpredictability, rising debt burden, and sticky inflation are all factors that are likely to support investment metals for the foreseeable future,” Hansen said.