Gold set to extend gains as trade war escalation

4 Mart 2025

Gold set to extend gains as bond market uncertainty, trade war escalation

Written by Samer Hasn, Senior Market Analyst at XS.com

Gold is up about 0.3% today and is holding near $2,900 per ounce, reflecting last week’s lows.

Gold’s gains come amid the highest levels of uncertainty this year in the US market, whether for stocks or bonds. This coincides with the US escalating its trade war with Canada, Mexico and China, and the beginning of the effects of this trade conflict in the slowdown in economic activity.

Yesterday, the two major fear indicators in the stock and bond markets, the Volatility Index (VIX) and the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE), rose to more highs this year.

In the stock market, concerns may grow about the ability to regain the upward trend with the continued decline of the market’s locomotive, which are semiconductors, specifically Nvidia, which yesterday reached its lowest level since September of last year.

The trade conflict escalated today as new tariffs on Canada, Mexico, and additional tariffs on China took effect. In response, China retaliated by imposing tariffs on American agricultural imports, specifically targeting soybeans, of which it is the largest importer, purchasing over $12 billion in 2024. Additionally, China introduced export restrictions on certain products with both civilian and military applications.

While tariffs on American agricultural exports were one of the most prominent points that raised experts’ concerns about the consequences of the trade war on the economy. China may also move to expand its restrictions on American companies, especially those in the technology sector, which is a source of concern for the markets.

Despite this, China may still hope to negotiate with the United States to reduce tensions, but the successive and mutual escalation measures threaten to ignite an all-out trade war, according to Reuters, citing analysts. Meanwhile, the Chinese Foreign Ministry said that if Washington insists on waging a trade war, China will fight to the end.

Even before the trade war escalates, its effects are already taking shape. The Institute for Supply Chain Management’s manufacturing PMI survey reported that demand has weakened and companies continue to destaffing following the tariff shock. This has led to a slowdown in manufacturing activity, with the headline manufacturing PMI reading coming in at 50.3, slightly below expectations.

Furthermore, the survey reported that prices index rose to the highest level since July 2022 in February, as anticipation of the upcoming tariffs mounts.

Therefore, the market is facing risks of an economic slowdown coupled with rising inflationary pressures, which could keep the state of high uncertainty about the path of monetary policy and could explain the heightened concerns in the bond market. This confusion could preserve gold’s ability to recover.

 

Zaid Barem / ymm