It is said that history does not repeat itself but it sometimes rhymes, and as President Trump took the oath of office for a second time in January 2025, there were many familiar verses from his first term.
Tariffs, immigration, a US manufacturing renaissance, development of oil and gas resources and a rejection of the climate change consensus were all straight from the playbook of the 2017-2021 administration. So what is in store for precious metals as we embark upon this new political era?
Trump 1.0 on Replay?
It is worth recalling what was happening in the markets during the first Trump administration, at least until the global COVID-19 pandemic of 2020 up-ended macroeconomics and commodities alike. The period from Trump’s first inauguration in January 2017 until December 2019, just before the start of the pandemic, was a time of generally subdued inflation, steadily rising interest rates (until mid-2019, whereafter it was followed by steady easing) and a somewhat range-bound dollar.
These relatively benign economic conditions helped gold, silver and platinum make gains during the period, while the more industrial-facing precious metals palladium and rhodium were on a tear, rising 158% and 608% respectively. Historians may argue about how much credit is due to the administration for this, but the tight global supply-demand fundamentals of these two metals certainly played a role during this period.
Tariff: The Most Beautiful Word?
Perhaps not everyone would agree with President Trump that ‘tariff’ is the most beautiful word in the dictionary, but it is one we will be hearing a lot in the next four years. Already at the time of writing, in early February 2025, fear of tariffs on imports to the US is causing considerable market dislocation. Reports that the London market is being drained of its gold and silver, as metal is sent to the US ahead of potential tariffs, may be somewhat exaggerated – there is still plenty of physical metal in London’s vaults. However, there has been a drawdown of physical metal as market participants look to close out futures contracts before tariffs are imposed. This rush to secure physical metal has depleted liquidity and led to sharply higher borrowing costs, with gold, silver and platinum all experiencing short-term lease rates well into double-digit percentage figures.
How long this market dislocation will last, and whether it will descend into an all-out trade war that could damage global growth, depends on whether President Trump will apply tariffs on some of the United States’ biggest trading partners, as has been widely threatened. Chinese imports are already subject to 10% universal tariffs as of February 2025, prompting even greater tariffs on US goods by the Chinese authorities.
A stay of execution has been granted to Mexico and Canada, which were facing 25% universal tariffs, until 1 March, while possible blanket tariffs on the EU have been the subject of a great deal of recent rhetoric and speculation. To date, tariffs have been used largely as negotiating tools (in relation to immigration and illegal drugs, in the case of Mexico and Canada) and the threat of tariffs will likely continue to be used as a bargaining chip. While the wisdom of increasing the cost of raw material inputs at a time the US is looking to grow its manufacturing base may be questioned, tariffs are likely to be a running theme of this administration and there are not expected to be specific exemptions for precious metals – unlike, for instance, Canadian oil, which may be subject to a lower tariff rate.
According to analysis done by the IMF before the US election, if higher tariffs were to be placed on a “sizeable swath” of global trade by mid-2025, it would reduce economic output by 0.8% this year and 1.3% in 2026. An escalation into a wider global trade war could be more damaging and, in such a scenario, gold would be in even greater demand as a risk hedge and portfolio diversifier among investors and central banks, and the more industrial-facing white metals’ prospects may be dampened.
Inflation
Tariffs are of course potentially highly inflationary, not only for the US economy, but also for countries seeking to put in place retaliatory tariffs on the United States, or stimulate their economies to compensate for the loss of market share in the US. Other policies of the new Washington administration may also prove to be inflationary, such as immigration restrictions and possible large-scale deportations from the US, which may add to labour market inflation. Tax cuts, pro-growth policies and Federal spending would also help fuel price rises. Higher inflation would of course be a positive factor for gold prices, with gold potentially in greater demand for its inflation hedging and wealth-preserving features, and the white metals may be lifted by greater demand and the rising tide of prices in an inflationary environment.
Higher inflation of course brings the risk of higher interest rates if the Federal Reserve’s long-term 2% inflation target is consistently exceeded, a situation that could be negative for precious metals by raising yields and increasing the opportunity cost for holding these non-yielding assets. Pressure to increase rates may bring the Fed into conflict with those in the White House for whom low interest rates are desirable for the boost they give to US economic growth more generally and for the fact that elevated inflation helps ultimately reduce the record level of US Federal debt.
The Greenback
As well as inflation and interest rates, there is another conundrum at the heart of the new administration’s macroeconomic approach – how to square the circle of a stronger dollar emanating from pro-growth policies, tariffs and possible rate rises with the Trump administration’s desire to weaken the dollar in order to help exporters and reduce the US trade deficit. Donald Trump and his now-Vice President, JD Vance, spent a good deal of last year’s campaign talking down the dollar in order to help US manufacturing industry, and some future deal to weaken the dollar relative to other currencies, akin to the Plaza Accords of the 1980s, perhaps in exchange for waiving tariffs, is foreseeable in the next four years. Generally, a weaker dollar means stronger precious metals priced in US dollars – so a concerted effort to weaken the greenback would ultimately be beneficial to precious metals prices, at least in dollar terms.
Geopolitics
At the start of 2025, geopolitical concerns continue to provide some support to gold as a risk hedge, and given the myriad risks and uncertainties, this seems unlikely to diminish in the near term. President Trump’s plans to reshape the Middle East in the wake of the Israel-Gaza conflict have unsettled many, while the ongoing war in Ukraine continues without a clear end in sight. Central banks around the world continue to dedollarise their holdings partly in response to geopolitical concerns and due to the macroeconomic uncertainties highlighted above. While an end to the Russia-Ukraine conflict may not be possible in one day, as promised by President Trump during his election campaign, some sort of settlement of borders in exchange for a security guarantee for Ukraine may be in the offering in the months ahead, though whether that then allows Russia to return to the international fold and potentially supply its PGMs, and in particular the 40% of the world’s palladium that it produces, more widely remains to be seen. Overall, increasing fragmentation of international institutions and a more transactional US foreign policy are likely to keep geopolitical risks elevated and continue to support precious metals.
Drill Baby Drill
One of the first acts of the incoming Trump administration was, like in 2017, to opt out of the Paris Climate Change treaty, and a slew of executive orders subsequently opened up new oil and gas exploration and development. This represents something of a mixed picture for precious metals, which have a crucial role in both hydrocarbon processing and in clean energy generation. New oil and petrochemical refining capacity in the United States is of course positive for PGM and silver demand (as the metals are used in many different catalysts from the processing of fuels to the manufacture of plastics); however, this may represent a zero sum game globally if this comes at the expense of shuttered capacity elsewhere.The suspension of Biden-era green new deal policies threatens to damage demand for silver in solar power generation and PGM demand in new and emerging technologies such as hydrogen and e-fuels, though since the latter are very much nascent technologies, the loss of demand is less significant for those markets in the near term. It remains to be seen whether the revocation of these policies by executive order will be successfully challenged in the courts or whether the Trump administration will unveil support measures of its own designed to drive innovation and domestic manufacturing in new clean technology industries.
“You’ll be able to buy the car of your choice…”
Perhaps one of the brighter spots for industrial precious metals demand under the Trump administration (or the least negative, depending on your point of view) is the scaling back of support measures for electric vehicles, which was signed by executive order in the first few hours of the new administration. Surprising as this may seem for an administration that includes the CEO of Tesla, the world’s largest EV maker, it is clear that this is a significant change of direction and that vehicles containing internal combustion engines will increase in market share. Provided that pollutant emission limits are not dialled back, this should stem the decline in demand for PGMs in the automotive sector, and potentially usher in a new era for palladium and rhodium, which are still markets overwhelmingly dependent on emissions control applications. However, the more positive outlook for PGM demand in the auto industry is tempered somewhat by the threat of disruption to the North American manufacturing supply chain due to potential tariffs on Canada and Mexico, and the tariffs recently announced for imports of steel and aluminium.
The next four years, and possibly beyond, are likely to be a time of big changes for trade relationships, economics, geopolitics and security, with both challenges and opportunities for precious metals. Given the myriad risks and uncertainties, it could be an era in which gold performs well as a safe haven, but there are also opportunities in the more industrial, pro-growth white metals. Hang on to your hats, it’s going to be an interesting ride!
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The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views or official positions of any organisation or affiliated entity. The content provided is for informational purposes only and should not be construed as representing the official stance or policy of any organisation.
