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Gold Price Has Best Quarter in 38 Years, but Tariff's Are a Double-Edged Sword

Published by honor in category Market News on 04.04.2025
Gold price (XAU-GBP)
2,356.60 GBP/oz
  
- GBP5.97
Silver price (XAG-GBP)
22.95 GBP/oz
  
- GBP1.11

The first quarter was the best for gold prices since 1986. In the short term, this has been driven primarily by US tariffs and the escalation of the trade war. However, it is important to note that the tariff war is now proving to be a double-edged sword for gold.

The price of gold rose a total of 9.3 percent in March and ended the month at $3,123.7 per ounce. The last time a monthly increase was this large was in July 2020 – a few months after the outbreak of the corona crisis and the start of massive money printing.

The price of an ounce rose by a whopping 19 percent over the quarter. The last time gold rose this much in three months was in the second quarter of 1986, when it rose by 23.6 percent.

Gold is still far behind the growth rate of the 1970s. At that time, there were six quarters with an increase of more than 30 percent during the decade. Between 1970 and 1980, the price of gold increased a total of 24 times.


Check out the live gold price here.

Tariff War is a Double-Edged Sword for Gold

The new broad tariffs imposed by the US against all countries in the world in the first days of April now threaten to plunge both the US and global economies into crisis.

While the uncertainty resulting from tariffs supports gold, a sharp decline in financial markets resulting from tariffs and an economic crisis would also put pressure on the price of gold, at least in the short term. We saw this during both the 2008 financial crisis and the 2020 corona crisis.

When the 2008 financial crisis broke out, gold fell by 30 percent, and at the beginning of the 2020 COVID-19 crisis, it fell by 15 percent. In the case of the corona crisis, however, gold made up for the decline very quickly, in just weeks. After both cases, when gold fell in price in the first months of the crisis, we later saw a very rapid upward phase.

This is why gold came under pressure after the new tariffs were announced, especially in all currencies other than the dollar. In euros, the price of gold fell by almost 3 percent on April 3, while silver fell by more than 6 percent in euros. However, in dollars, gold is still near record highs.

In March, Trump announced tariffs on automakers, and on April 2, he announced global tariffs

All trading partners will be subject to a minimum tariff of 10 percent. The 60 countries that have a trade surplus with the United States will face even higher tariffs.

The Probability of a Recession Increased Sharply

These tariffs are a serious escalation of the trade war, and previous tariffs seem rather insignificant compared to such broad measures. The new tariffs have clearly increased the likelihood of an economic recession.

In my opinion, the best indicator of a recession is an inversion of the yield curve. An inversion of the yield curve is when short-term interest rates rise above long-term interest rates. Typically, a recession has occurred after the yield curve has inverted again (long-term interest rates rise above short-term interest rates again). This is clearly seen in the graph below.

This graph shows the yield on the 10-year U.S. Treasury bond minus the yield on the 2-year bond. That is, how much interest the U.S. has to pay on long-term borrowing versus short-term borrowing. It is clear here that we are already in territory where a recession has been weeks or months away in the past.


The interest rate differential is currently 0.29 percent. If you look at the previous four major economic crises, each one has been just weeks or months away from reaching this level. In the early 90s, the crisis began at 0.35 percent, in 2001 at 0.48, in 2008 at 0.77, and in 2020 at 0.18.

Therefore, it is now a very real possibility that the tariff war could be the “trigger” of an economic recession.

Recession Could Improve US Budget Situation

If we look at it from the perspective of the US national debt, the recession is actually beneficial for the US financial situation. The US will have to refinance more than $8 trillion in national debt this year, and at the current rate, it will have to do so at fairly high interest rates.

If a recession were to occur now, it would force the Federal Reserve to lower interest rates, and bond yields (the interest the U.S. must pay to borrow new debt) would likely fall sharply for a while. This in turn would mean that the U.S. could refinance a large portion of its national debt at lower interest rates, helping to ease the pressure on the budget from rising interest payments (higher interest rates).

We are actually already seeing this process. The yield on the US 10-year Treasury bond plunged sharply after the tariffs were announced, falling from 4.22 percent to 4.04 percent. In a recession, we can see yields fall to the 2-3 percent range. This also means a short-term appreciation of bonds, because when yields fall, bond prices rise.

This does not change the long-term picture, however. It allows the US to improve its budget situation somewhat, but in my opinion bonds are still in a long-term down cycle. If a crisis were to come, central banks would respond by printing money, and together with the impact of tariffs, this would probably lead to a second wave of inflation, where bonds would again lose a large part of their value.

Gold price (XAU-GBP)
2,356.60 GBP/oz
  
- GBP5.97
Silver price (XAG-GBP)
22.95 GBP/oz
  
- GBP1.11

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