Gold’s long-term fundamentals were already looking positive, but President Trump is “super-charging” those trends by effectively rejecting the US role as reserve currency issuer, according to James Luke, fund manager, metals at Schroders.
By proposing heavy tariffs based on the size of deficits, Trump is making it clear that the US wants balanced not free trade. It can also be viewed as a de-facto rejection of the US dollar-centric global monetary regime.
Gold prices have rallied by over $1,000/oz, since “breaking out” in early 2024. It has had a particularly good run this year, with prices reaching $3,150/oz in early April.
The tariff-based assault on the global trading system might lead to significant repatriation flows as investors question how safe US dollar assets now. With a shortage of credible alternatives, “expecting gold to be a major beneficiary of such a repatriation trend is common sense to us,” said Luke, in a recent note.
“It is worth stating again that in a scenario where already strong central bank demand is joined by strong global investment demand, gold prices could easily move much higher to generate the increase in recycled supply and destruction of jewellery demand necessary to balance the market,” Luke said.
Manwhlie, mine supply cannot respond quickly; despite already record high prices, mine supply is basically flat on 2018 levels.
“Gold at $5,000/oz by the end of the decade did not feel an outlandish scenario 12 months ago. It feels frankly conservative now,” Luke said.
For gold equities, Schroders believes that current prices are very likely to translate into the largest growth in earnings and free cash flow of any sector in the broad equity market.
“No other major commodity is anywhere near its all-time real high, let alone above it. This is because gold is rallying as a monetary asset, not as a commodity asset,” said Luke.
