Canadian consumers may be showing their preference for homegrown fruit and liquor after U.S. President Donald Trump launched – then delayed – a trade war. But investors are making a statement with something that is potentially far more lucrative: They’re betting on gold.
Monday’s market action provided a template for what could happen should Mr. Trump, ultimately, impose 25-per-cent tariffs on Canadian imports (10 per cent for energy) while targeting Mexico and China as well.
Auto parts, railways and banks, to name just three examples, will get hammered as share prices reflect the likelihood of a recession and reduced trade activity.
But the day’s activity also highlighted winners that could emerge as investors seek shelter from the economic mayhem that is unlikely to be limited to Canada, Mexico and China.
Gold stood out. It rallied as much as US$37 an ounce and ended the day at a record high of US$2,857.10.
Mr. Trump’s decision to push out the starting day for tariffs against Canada and Mexico by a month did nothing to dampen the enthusiasm: Gold continued to gain Tuesday and Wednesday, reaching a new intraday high of US$2,906 an ounce before the rally sputtered Thursday.
Gold stocks also shone over the same three-day period. The NYSE Arca Gold BUGS Index, which tracks the world’s major producers, including Canada’s Agnico Eagle Mines Ltd. (AEM-T) and Barrick Gold Corp. (ABX-T), rose 5.5 per cent, offering equity investors an attractive offset against trade-related turbulence elsewhere.
The latest gains extended a gold rally that began about a year ago, after investors began to anticipate central bank rate cuts as inflation subsided. As interest rates decline, the opportunity cost of holding gold shrinks because alternative safe investments, such as cash and short-term securities, lose some of their appeal.
Central banks of several emerging economies, including India and Turkey, played another role in gold’s recent ascent: Some of them have become enthusiastic buyers of bullion in an attempt to diversify their foreign exchange reserves beyond the U.S. dollar.
Analysts at UBS Global Wealth Management expect central banks will buy a net 900 metric tonnes of gold in 2025. That is toward the upper end of recent annual purchases and well above an average of 500 tonnes a year since 2011, adding significant demand.
Over the past 12 months, the price of gold has soared nearly 35 per cent, outperforming the S&P 500 by about 22 percentage points. Agnico Eagle Mines has delivered a considerably bigger gain of 118 per cent – including a 25-per-cent gain so far in 2025.
Trade uncertainty adds to the bullish backdrop for gold.
Imports from Mexico and Canada represent about 20 per cent of U.S. gold consumption, according to analysts at Citigroup. Imposing tariffs on these imports will drive the price of gold higher.
If tariffs cause inflation to accelerate in the broader economy – as many economists expect – then gold demand should rise as investors seek a popular hedge. And if global economic growth is threatened, gold again emerges as a potential haven for investors seeking safety.
“We think any implementation of proposals for a universal U.S. import tariff, higher tariffs on China, as well as expected retaliatory tariffs from targeted countries will further escalate trade tensions and global growth headwinds,” said Tom Mulqueen an analyst at Citigroup, in a note this week.
He expects that any escalation will lift the price of gold to US$3,000 an ounce – suggesting a modest 4-per-cent gain from Thursday’s price but a massive psychological threshold if you believe in the importance of big, round numbers.
One thing that could stand in the way of this bullish scenario for gold? Level heads prevail.
That is, Mr. Trump recognizes that tariffs aren’t good for U.S. stocks and backs off his threats to impose them on Canada and Mexico, followed by much of the rest of the world.
This might be unfolding already, given that the U.S. President responded to Monday’s market turbulence, when the S&P 500 slid sharply in initial trading, with tariff postponements by the end of the trading day.
But some observers aren’t so sure the delays signal that a new Mr. Trump has emerged.
“Investors have suggested the equity market is the U.S. administration’s scorecard and any policy changes that hurt risk assets will be quickly dialled back. We advise caution,” said Mark Cabana, a rates strategist at Bank of America, in a note.
Gold offers investors an easy way to bet on caution. If tariffs remain a threat, it should pay off.