Gold price prediction today: TD Securities recently highlighted that the future trajectory of gold prices will largely hinge on developments related to President Donald Trump and the policies of the Federal Reserve.
The newly inaugurated U.S. government has threatened to impose import tariffs of up to 25%, causing continued disruption in commodity markets. Bart Melek, Global Head of Commodity Strategy at TD Securities, commented on the potential implications of these tariffs, highlighting concerns beyond just gold and silver shortages.
In a recent interview, Melek was asked about the outlook for tariffs under Trump. While he maintained a measured tone, he conveyed the potential repercussions of these policies. He remarked, “It looks uncertain; I think that might be the most polite and mild thing I can say.”
Melek noted a surge in EFP (Exchange for Physical) trading in the physical silver and gold markets, driven by concerns over the extent of the tariffs. Currently, the focus appears to be on Canada and Mexico rather than a global tariff implementation.
Melek emphasized that these tariffs would not only impact the metals market but also the energy sector, which is much more critical to the overall economy. He stated, “This doesn’t just affect the metals market; it affects the energy market, which is much more important to the overall economy.”
Impact on U.S. Supply Chains
When asked about the effects of tariffs on Canadian metal producers like Teck Resources, Melek warned that the U.S. government could create a complicated situation for domestic industries. Teck Resources supplies a significant amount of copper and zinc to the southern U.S.
The Importance of Energy
Melek pointed out that the energy industry holds greater importance than the metals sector. Canada is a major oil supplier to the U.S., with many northern refineries relying entirely on Canadian oil to meet local and regional demand.
Oil Imports from Canada
He stated, “Ultimately, I believe that regardless of what some politicians say about the southern border, Canadian oil is not easily replaceable.” The U.S. imports roughly 4.5 million barrels of crude oil from Canada daily, mostly heavy crude, which not only produces gasoline but also heavier fuels and other petroleum products needed for industrial and commercial transportation.
Melek remarked on the challenges of substituting Canadian oil, noting that even if refineries were modified, it would require substantial investment and time. “The U.S. does not have heavy crude oil and would need to import it from Venezuela, where many sectors are not running at full capacity, or from Saudi Arabia or elsewhere.”
Economic Considerations
He raised an important question: “Why target Canada while trying to replace it with foreign products from other regions?” Light crude oil is insufficient to meet demand, necessitating significant logistical adjustments, making this a long-term issue. In the short term, due to inelastic oil prices, the U.S. may bear much of the brunt of the potential 25% tariffs, essentially resulting in higher prices.
When asked if he believed Trump's tariffs would ultimately apply to Canadian oil exports, Melek sidestepped the question but indicated that such tariffs would be counterproductive for the U.S. economy. “I believe imposing tariffs on imported crude oil is unwise, as U.S. consumption still far exceeds its production, even though production is significantly higher than in the past.”
The Impact on Lithium Prices
Melek was also questioned about the potential effects of tariffs on lithium prices, a critical industrial metal for the ongoing green energy transition. He stated, “Ultimately, whenever you raise the price of a domestic commodity, demand tends to decrease. Lithium may be more elastic than oil, as we have fewer substitutes for energy derived from crude oil.”
Alternatives to Lithium
He continued, “If you use lithium for electric vehicles, I have alternatives like internal combustion engine vehicles, so I don’t think this will universally drive prices up.”
Tariffs and Precious Metals
On the other hand, Melek believes that tariffs will significantly impact precious metal prices, though not necessarily due to the supply-demand dynamics many market experts suggest. Instead, it may reflect how investors are responding to rising inflation.
Negative Supply Shock
Melek remarked, “If we do see widespread tariffs on commodities and manufactured goods, I would equate this to a negative supply shock. Essentially, total prices would almost immediately rise. Some costs will be borne entirely by U.S. consumers, while others will be passed on to producers, but overall, prices will increase.”
Federal Reserve's Role
Melek emphasized the importance of the Federal Reserve’s actions in this scenario. “Ultimately, it depends on what the Fed will do. The Fed is concerned about negative impacts on employment. If these tariffs lead to inflation and the Fed cuts interest rates significantly, we could see a repeat of the late 1970s and early 1980s, where tariffs caused supply shocks, and monetary policy exacerbated those shocks, leading to inflation issues that could affect not just the U.S. but global inflation.”
In summary, the threat of significant tariffs poses complex challenges for both the metals and energy markets. As Bart Melek outlines, the implications extend beyond immediate price reactions, potentially affecting broader economic conditions and the Federal Reserve's policy responses. Investors should remain vigilant as these developments unfold.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
