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A Renewed Trade Tension?
President Donald Trump has announced plans to implement a 25% tariff on all steel and aluminium imports, reigniting fears of trade disruptions in global markets. Although specific implementation dates remain unclear, the move echoes his 2018 tariffs aimed at boosting domestic metal production.
In 2023, the U.S. sourced a substantial portion of its aluminium and steel from Canada, with imports accounting for 44% of domestic aluminium consumption. Canada contributed 56% of these imports, while approximately 30% of U.S. steel imports originated from its northern neighbour. However, Trump's new stance contrasts with his previous 2019 decision to lift duties on Canada and Mexico following the North American trade agreement.
Market Reactions: Gold Surges, Industrial Metals at Risk
The immediate market reaction to Trump's tariff announcement saw gold climbing to near-record highs. Historically, tariffs fuel inflationary concerns, increasing investor appetite for safe-haven assets like gold. The People's Bank of China further amplified this trend, boosting its gold reserves for the third consecutive month in January, pushing total holdings to 73.5 million troy ounces. Data from the World Gold Council indicates that central banks globally continue to accumulate gold at an aggressive pace, with net annual purchases surpassing 1,000 tonnes for the third year in a row.
XAUUSD H4 Chart
On the other hand, industrial metals like aluminium and steel face a more uncertain outlook. A prolonged trade conflict could weigh on global economic growth, curbing demand for base metals. This was evident in 2018 when Trump's tariffs disrupted supply chains, leading to volatility in commodity markets.
Energy and Commodity Prices on the Move
European natural gas prices have surged to a two-year high amid colder temperatures and tightening storage levels, with inventories at their lowest for this time of year since the 2022 energy crisis. The oil market also responded positively, with both Brent and WTI crude trading above $75 and $71 per barrel, respectively. Short-term gains have been further supported by U.S. sanctions on an international network facilitating Iranian crude shipments to China.
Oil Prices
Meanwhile, the latest U.S. drilling activity report from Baker Hughes suggests a marginal recovery in oil production. The number of active U.S. oil rigs rose slightly to 480, although overall rig counts remain lower compared to the same period last year.
Agricultural Market Expectations
The agricultural sector is also in focus, with the USDA set to release its latest World Agricultural Supply and Demand Estimates (WASDE) report. Early projections suggest a downward revision of U.S. corn and soybean stock estimates, with expectations of reduced output in Argentina and Brazil. The global coffee market also experienced a decline in exports, with total shipments dropping 12.4% year-on-year, largely due to lower robusta exports.
The return of tariff policies under Trump’s leadership adds another layer of uncertainty to an already fragile global economy. While gold benefits from the instability, industrial commodities and global trade face potential disruptions.
For investors and market participants, the key focus now shifts to potential retaliatory actions from major trade partners, particularly Canada, Mexico, and China. If history is any indicator, markets should brace for volatility as trade negotiations unfold in the coming months.
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