Precious metals experienced significant volatility on Monday, driven by newly imposed tariffs from President Trump. Gold prices soared above the $5,160 mark, reflecting a more than 1% increase before later retracting. In a similar trend, silver prices surged past $87 before settling down, showcasing a classic example of whipsaw action as traders reacted to the latest tariff developments.
The recent turbulence in the markets can be traced back to a Supreme Court decision that overturned sweeping tariffs on Friday. Just as traders thought the situation was stabilizing, President Trump announced a flat 15% levy on imports, injecting uncertainty into the market. This unexpected tariff news has historically triggered a wave of risk aversion among investors, leading to increased demand for safe-haven assets such as gold. Gold is particularly appealing during periods of geopolitical tension or trade uncertainties due to its global pricing and lack of credit risk.
Silver, known for its higher volatility compared to gold, rallied nearly 3% during the day before giving back some gains. The smaller market size of silver, combined with a larger speculative presence, tends to exaggerate price reactions, making it susceptible to rapid swings. Silver had previously broken through resistance levels on Friday, but the fluctuation in prices indicated that market confidence remains unsettled.
Despite these early surges, both gold and silver failed to maintain their peak prices as the European trading session unfolded, highlighting the fragility of market sentiment. Data released last week showed a slowdown in U.S. growth to an annualized pace of 1.4% for Q4, falling short of market expectations. Such softer economic indicators typically lend support to gold, as they heighten the probability of interest rate cuts.
On the inflation front, the Federal Reserve’s preferred gauge, the Personal Consumption Expenditures (PCE) index, increased by 0.4% in December, surpassing forecasts. Elevated inflation rates may postpone anticipated rate cuts while potentially pushing bond yields higher, which can place downward pressure on non-yielding assets like gold.
Nevertheless, traders are still pricing in the possibility of two 25-basis-point cuts within the year. As long as this outlook prevails, gold maintains a positive long-term perspective, even in the face of fluctuating market headlines.
