As we discussed in part 1 – A gold market snapshot as of February 2025 – economies both emerging and developed are bracing for the impact of U.S. President Donald Trump’s tariffs against Canada, Mexico, China and the European Union, in addition to reciprocal tariffs to match tax rates other countries charge on U.S. imports, fueling near-term macroeconomic uncertainty.
Key vectors in the line of fire include inflation trends, equity valuations, the role of the U.S. dollar as the world’s reserve currency, as well as conflicts with U.S. involvement, such as the Russia-Ukraine War, tensions in Taiwan and the Israel-Hamas War.
It’s against this geopolitically tense backdrop that gold has stepped onto centre stage, posting an over 41 per cent year-over-year return as of February 28, outperforming the S&P 500’s 15.39 per cent and the TSX’s 18.29 per cent efforts, proving out its track record as an inflation hedge supported by steady central bank buying and rapidly rising retail investor buying expected in 2025.
Here’s a breakdown of how gold may react in 2025 contingent on key price drivers discussed in part 1, including tariffs, inflation and elevated geopolitical tension, providing a framework for investors to capitalize on volatility and identify attractive entry points.
Tariffs and gold volatility
Should tariffs, including retaliatory ones, be instituted over the long-term, global supply chains would suffer devastating disruptions, leading to decreased productivity, widespread inflation and the highest level for recessionary risk since the COVID-19 pandemic in 2020.
While new synergies stemming from tariff pressures – including the potential dismantling of commercial barriers between Canadian provinces and Mexican states – would encourage more favorable prices for consumers, many industries overly reliant on U.S. trade would face significant price pressures, leading businesses to downsize or close outright in the absence of economical paths forward.
Decreasing confidence in global economic growth and the stability of the U.S. dollar would likely send investors fleeing to gold to weather the fallout, granting them a safe vantagepoint to assess the landscape as companies secure new supply partners and consumer prices shift to reflect them.
To the contrary, if Trump’s tariffs prove to be negotiation tactics that lead to swift compromises, productivity would carry on without greater interruption, granting equity markets more confidence about pricing in long-term growth. This dynamic would stoke risk sentiment, temporarily weighing down the gold price, but would eventually make bonds less attractive and lower the opportunity cost of holding gold in a portfolio.
Inflation and gold volatility
Inflation has been on downward trajectories from 8.1 per cent in June 2022 to 1.8 per cent in December 2024 in Canada, and from 9.1 per cent to 2.9 per cent in the United States, respectively, setting broad expectations of looser monetary policy ahead in line with a global deflationary trend tracked by the International Monetary Fund.
Should this trend reverse course because of tariffs, AI’s ongoing exponential growth, a deteriorating U.S. labor market, oil market volatility, or a confluence of catalysts, investors will be incentivized to hedge with gold to offset the increased cost of living, supporting prices for explorers, developers and producers across the supply chain already benefiting from the metal’s multi-bagger performance since 2018. According to CPM Group, global gold mine production is expected to triple from 0.5 per cent in 2024 to 1.5 per cent in 2025 – reaching about 88.6 million ounces – as gold tests the US$3,000 level for the first time.
Playing devil’s advocate, scenarios where inflation continues to fall are by no means unreasonable, with weak European manufacturing, moderating U.S. growth and slowing Chinese exports serving as potential contributing factors. Should the risk of recession rear its head, investments will rotate into gold as ballast against excessive pessimism until the path to growth becomes clear once again.
Geopolitical tension and gold volatility
Given persistent increases in the Geopolitical Risk Index over the past few years, history suggests that stocks are positioned to the downside while gold is positioned to outperform, continuing the metal’s dominant track record over major asset classes during times of heightened geopolitical tension.
Central banks around the world are well aware of gold’s alpha during trying times, with mounting evidence that they will invest in more than 1,000 tons for the fourth straight year in 2025.
Retail investors are also capitalizing on gold’s crisis protection tailwind, helping to grow gold-backed ETF assets under management from US$100 billion in 2018 to US$270 billion in 2024, with falling interest rates, U.S. equity overvaluation and a strong case for dollar weakness signaling robust demand in 2025.
While we’ve entertained flipside scenarios over the past two sections, it’s important to note that geopolitical tension is a feature of the global industrial complex, not a bug, meaning that every investor needs to reconcile return requirements with the need for downside protection before building a portfolio.
Gold’s differentiated value proposition
Regardless of how Trump’s bluster affects the macroeconomic climate, gold’s value proposition is evergreen, offering low-correlation to major asset classes while outperforming them all except U.S. stocks since 1971, demonstrating its ability to fortify portfolios for the ups and downs of an investing lifetime.
This proposition is especially relevant today as more permissive monetary conditions entice investors to take risk, and deepening trade disputes strike a note of caution, calling on gold to deliver its unique blend of protection and capital appreciation.
Look out for the final article in our three-part series, where we’ll take a closer look at why investors own gold and hold conviction in its ability to deliver strong long-term returns.
This is sponsored content issued on behalf of Border Gold Corp., a leading Canadian gold and silver dealer, please see full disclaimer here.
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(Top image, generated by AI: Adobe Stock)
