The much-awaited trade wars have officially begun as Trump imposed 25% tariffs on Mexico and Canada. In addition, he levied 10% tariffs on China and heated up the global trade and commerce markets. Countries are now looking to safeguard their economies as Trump is punishing anyone for not falling in line. Gold prices could gain the most out of the situation as institutional investors fear repercussions from aggressive trade tariffs.

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The XAU/USD index touched the $2,800 level on Monday with economists pointing towards a ‘strong buy’ on the precious metal. The burden of tariffs could soon be borne by American consumers as importers will place it on their shoulders. Early in the Biden administration, former Treasury Secretary Lawrence Summers warned that Trump’s tariffs could lead to inflation in the next four months. If the US faces inflation, gold prices would be the first to go up and deliver profits while other investments will remain on the back foot.

“This is a self-inflicted wound to the American economy. I’d expect inflation over the next three or four months to be higher as a consequence because the price level has to go up when you put a levy on goods that people are buying,” he said to CNN. The development could make gold prices ripe for another rally and breach the $3,000 mark next.

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Gold Prices Could Climb Above $3,000

The uncertainty of trade policies and tariffs will impact the global economy leading to a slowdown in consumerism. “Gold’s performance highlights the complex interplay of global factors impacting today’s economy,” said Paul Williams, Managing Director at Solomon Global.

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“This is not a temporary spike or just a ‘Trump Bump’ but a reflection of an uncertain geopolitical landscape and deep-rooted instability in the global economy. The shifting world order is becoming increasingly volatile, making gold prices an enticing option for hedging risk and safeguarding wealth,” he said.