Gold justifies its place

It's unnecessary to pass judgement here on the Trump tariffs, the feared impact of which has sent the financial world into a spin. Sometimes that spin has absurdly dropped into hysteria - in the Financial Times, once the most balanced of judges of all things financial, its chief economics commentator calls the tariffs "not just lunacy" but also "wicked".

A less emotional judgement on the tariffs has come from Spain's governor of the central bank, Jose Luis Escriva. He has said the tariff turmoil might undermine the Dollar's status as a reserve currency. It certainly looks that way as US government bonds - traditionally seen as the safest of safe havens - have been sold off. Bond yields - which move inversely to prices - have been surging; the cost of borrowing has risen sharply. No government bonds were safe; in the UK the yield on 30-year government bonds rose to their highest in almost three decades. The Dollar has dropped to a six month low against major fiat currencies.

Stock markets around the world have plunged since President Trump imposed the tariffs. The S&P 500 is on the precipice of bear market territory, closing in on a 20% fall from the all-time high it reached just seven weeks ago. On Monday this week the Hang Seng in Hong Kong dropped 13%, its biggest daily plunge since the 1997 Asian financial crisis. The CBOE (Chicago Board Options Exchange) VIX index, known as Wall Street's 'fear gauge', is at levels close to those seen during the 2020 Covid-19 pandemic and the 2008-09 Great Financial Crash. The Nasdaq and Russell 2000 indices are already in a bear grip.

And what of gold? It stumbled amid the turmoil to below $3,000/ounce on 7 April. But has since recovered to above $3,000, bolstering its claim to be the ultimate safe haven. And with Glint, gold is a safe haven that can be used as e-money in your daily transactions.

What next?

Economists have turned to Jerome Powell, chairman of America's central bank, the Federal Reserve, in hope he might be able to staunch the bleeding . The President has called on Powell to cut interest rates, "and quickly". The Federal funds rate is 4.25-4.5%. There's no love lost between Trump and Powell - Trump has already said he will not nominate Powell when his current term expires in 2026. Powell has said the tariffs would have a "persistent" impact on inflation. Personal consumption expeditures (PCE) inflation in the US is 2.5%, above the Fed's 2% target. There is a broad consensus that inflation will rise as a result of the tariffs. That prospect argues against any interest rate cuts.

There is also a broad consensus that there is now a higher chance of the tariffs pushing the US economy into a recession. A global economic slowdown, a consequence of shrinking trade, seems inescapable. That prospect should encourage the Fed into cutting interest rates. The falls in equities, the gloom pervading many large businesses, consumer spending is weaker than expected, US bankruptcies are higher year-on-year, are all signals that in normal times would prompt the Fed to cut rates.

But these are not normal times.

Powell, like most people right now, is in a dilemma.

America versus China - and gold wins

China and the US now seem locked into a game of trade poker, each raising the stakes. President Trump has now raised the tariff imposed on Chinese goods to 125%, with immediate effect, "based on the lack of respect that China has shown to the world's markets" he said. That followed a 104% initial tariff on China from the President, to which China responded with an 84% tariff on US imports to China. It's truly a tit-for-tat, who will blink first, tussle.

It's already a mess, no matter whether you think the President is right or not. It may get messier. In a fight the best place to be is on the sidelines. The three month pause on imposing tariffs announced by President Trump has seen a rebound in stock values, but it may not restore trust, that most precious asset.

As an earlier President said, "we have gold because we cannot trust government".

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.