Lagos —

The recovery in gold prices could be due to investors readjusting their portfolios following the recent turmoil in the US stock market triggered by the intensification of the trade conflict. Although this development wasn’t entirely unforeseen, the broad-scale selling off seen across various assets last week seems to have compelled some gold holders to sell off their holdings either to meet margin calls elsewhere or capitalize on profits amid all-time highs.

The resurgence in profits for gold seems to signal a renewed focus on market basics, potentially increasing interest in safe-haven assets as expectations diminish regarding the easing of trade tensions and concerns grow over the escalating impact of the conflict.

The most unfavorable situation is now turning into reality: a comprehensive trade war is unfolding due to reciprocal tariffs imposed by the United States against significant economic powers. This escalation culminated when Donald Trump declared additional tariffs on Chinese goods, pushing the overall rate up to approximately 125 percent.

The rapidly escalating cycle between both parties is diminishing hopes for an agreement and a diplomatic resolution to the trade dispute. As mentioned in an editorial by the Wall Street Journal earlier this week, initiating a trade war may be simple, but halting it becomes challenging after a chain of reciprocal actions has been set into motion.

Although Trump claims that many global leaders are eager to discuss tariff adjustments, concrete talks seem unlikely anytime soon, particularly concerning China, regardless of the reciprocal indications observed since he took office. Given that tariffs currently exceed 100%, it could take considerable time for them to be reduced by half—a figure that remains substantially high.

A major source of pressure on Trump continues to be influential CEOs in the U.S., whose businesses face substantial risks due to escalating trade tensions. The Journal reports an increasing chorus among Wall Street leaders and notable personalities voicing worries over economic prospects and the unpredictability of trade policies. This recent upheaval has brought back memories for Wall Street bankers and traders of the 2008 global financial meltdown, notes the New York Times. Yet, what sets apart this present situation, as highlighted by The Times, is the limited expectation of governmental assistance to bail out the financial industry, unlike previous instances.

In addition to concerns about the immediate economic impact of tariffs, the US economy might be clouded by uncertainty. This could discourage businesses from investing in the US—a primary objective behind Trump’s tariff policies—owing to his track record of unpredictable decisions, as reported by the Washington Post. Furthermore, moving company facilities from lower-cost nations to the United States demands considerable time and financial resources. Such shifts can lead to increased costs for consumers and decreased overall economic efficiency, potentially failing to deliver the intended advantages, as noted by The Post.

Up until that point, whether we witness the fulfillment of Trump’s vision—which seems far-fetched according to many experts—of shifting manufacturing back to the U.S., along with an overall economic rebound, or successful negotiations with other nations take place, financial markets will stay uncertain about both the outcomes of current policies and the implications of upcoming measures, fuelled by concerns over potential economic downturns. It is this uncertainty that makes gold retain its status as a safe-haven asset during these times marked by increased risk aversion.

As the debate surrounding the trade war continues, along with discussions of its outcomes and where it might be headed, the heightened geopolitical strains in the Middle East have the potential to echo through financial markets. This would increase worldwide uncertainty and contribute to the factors driving up gold prices.

A head-on confrontation between the United States and Iran now seems less improbable than before. Such an encounter could spark a protracted conflict in the area, possibly endangering the world economy.

Iran has cautioned nearby nations not to use its land and air space for hostile actions against it. Should such an action occur, Iran might retaliate against regional oil and economic assets, which could disrupt the supply of crude oil and affect sea traffic, likely leading to higher prices.

This occurs as Iran has made significant advancements in its nuclear program and might choose to escalate its demands to secure a new agreement, ensuring they do not pull out of it like before. Consequently, making headway on the negotiation front is expected to be considerably tougher this round, as reported by The Journal.

Include as well the continuous pressure exerted by Israel on Trump, who is already encircled by hardliners regarding Iran, to strike at nuclear sites.

Conversely, factors that might deter both parties from engaging in direct military confrontation include the present challenges confronting the U.S. economy and its prioritization of other critical issues like Taiwan and Ukraine. Additionally, should the economic squeeze intensify and attacks target Iran’s deteriorating energy sector—potentially halting all exports—the country could be pushed towards an economic implosion.

Samer Hasn, who serves as a Senior Market Analyst at XS.com,