Precious Metals Suffer Worst Drop in Months Amid Tariff Turmoil

 

Precious Metals Suffer Worst Drop in Months Amid Tariff Turmoil

(Bullion News Network) – Gold and silver both extended losses today as markets reeled after U.S. President Trump’s tariffs announcement on Wednesday. Calling it “Liberation Day,” the American leader announced a minimum 10% tariff levied against U.S. trading partners. Each country also faces a varying additional tariff proportional to the import fees it currently places on American goods. The tariff plan was codified with a new executive order. All totaled, The Budget Lab at Yale finds that this new slate of tariffs brings the U.S. effective tariff rate to 22.5%, which would make it the highest effective tariff rate since 1909. Notably, this effective tariff rate is higher than that imposed by the Smoot-Hawley Act, a 1930 tariff law that some historians contend worsened the Great Depression. 

Wall Street immediately sank in the aftermath of the tariff announcement, triggering the worst stock market performance since the 2020 crash amid the global COVID-19 pandemic. Over the course of two days, the Guardian reports that American markets lost a total of $6.4 trillion dollars in value. Concerns about inflation and global trade wars drove the Nasdaq into a bear market, with the tech-heavy index losing over 20% since its peak during December’s “Trump Bump.” The bleeding continued today as China announced its plans for retaliation, a move that economists say implies that a large-scale trade war is on the way. The extensive new tariffs include few exemptions but do make exceptions for certain precious metals and energy products. 

Gold initially jumped on the news Wednesday but sank during after-hours trading. Both gold and silver extended losses to round out the week, with gold dropping below $3,050 per troy ounce by market close Friday. Silver was hit even harder, shedding over 8% of its value from Wednesday to Friday. The lopsided price action drove the gold-silver ratio to 102.41, the highest GSR since April of 2020. Both precious metals, traditionally considered safe haven assets used to hedge against inflation, fell victim to a market-wide selloff. 

Precious metals may also be sliding as traders are forced to sell existing holdings in order to cover losses. A risk-heavy event such as President Trump’s announcement of historic tariffs could cause investors to liquidate safe haven assets to cover losses and add to their cash reserves. Standard Chartered’s Suki Cooper told Reuters that this would not be an unprecedented phenomenon: 

We tend to see gold as a liquid asset being used to meet margin calls elsewhere, so it’s not unusual for gold to sell off after a risk event given the role that it can play in a portfolio […] [Gold is] behaving in line with the historical trends.

Federal Reserve Chair Jerome Powell spoke to reporters, expressing concerns that President Trump’s tariffs could lead to higher consumer prices and slow economic growth. President Trump urged the economist, who was appointed by Trump in 2018, to cut interest rates in a Truth Social post:

This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always “late,” but he could now change his image, and quickly. Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!

Chair Powell emphasized in his talk that the Federal Reserve’s objective is to pursue economic growth and declined to weigh in on political matters. Powell’s comments regarding inflation mirrored Wall Street’s anxieties; Chair Powell says that President Trump’s tariffs could make inflation stickier and slow the Fed’s progress as it attempts to achieve its dual mandate of lowering prices and maximizing employment in the United States. Despite the hawkish undertones, Powell believes that the FOMC is prepared to respond to shifts in economic risks on either side of this dynamic as they arise. 

Gold will end the week down nearly $50. Silver is down over $4.25 on the week. The gold-silver ratio will close nearly 10 points higher than Monday’s price at a four-year high of 102.28:1.