Trump’s Tariffs Shake Markets: Gold Gains Amid Stock Volatility and Rising Inflation Risks

Will Trump’s Tariffs Spark Market Volatility?

U.S. stock futures reversed early losses Sunday after President Donald Trump announced plans to impose 25% tariffs on all steel and aluminum imports into the United States. This move, expected to be followed by additional reciprocal tariffs on Tuesday or Wednesday, raises concerns about inflationary pressures and potential retaliation from major trading partners, including China, the European Union, and Canada.

While Trump has previously implemented tariffs, including a 10% levy on Chinese goods, the latest measures add another layer of uncertainty to global trade. The market reaction last week was immediate, with the Dow Jones Industrial Average falling 444 points, the S&P 500 shedding 1%, and the Nasdaq dropping 1.4%.

Which Markets Are Most Exposed?

Currency markets showed early jitters as the Canadian dollar, Australian dollar, and euro weakened against the U.S. dollar. The Canadian dollar fell 0.33% to C$1.4347, reflecting concerns over its key role in supplying steel and aluminum to the U.S. The euro and Australian dollar also experienced declines but pared some losses as traders weighed the impact of the tariff announcement.

The Japanese yen saw the largest movement, with the dollar strengthening 0.7% to 152.43. Meanwhile, China’s yuan weakened past the 7.3 per dollar level for the first time in weeks, signaling market unease over potential trade disruptions.

How Will Inflation and Interest Rates Respond?

Investors are now focusing on how the Federal Reserve will respond to inflation risks stemming from higher import costs. Tariffs often translate into increased prices for consumers, which could pressure the Fed to maintain elevated interest rates. With U.S. inflation data set for release on Wednesday and Fed Chair Jerome Powell scheduled to testify before Congress, markets are bracing for potential signals on future rate policy.

Traders have already adjusted their expectations, now pricing in 36 basis points of Fed rate cuts this year, down from 42 basis points previously. If inflationary pressures intensify due to tariffs, expectations for rate cuts could diminish further, putting additional strain on equities and consumer spending.

What’s the Bigger Picture for Gold and Commodities?

Gold prices have surged to $2,902 per ounce, but history suggests that higher tariffs do not necessarily support long-term gains in the precious metal. Data going back to 1916 indicates that gold has performed better during periods of lower tariffs. However, in the current environment, concerns over economic instability and global trade tensions could continue to drive demand for safe-haven assets.

Steel and aluminum stocks may see short-term benefits from the new tariffs, but broader industrial sectors relying on these materials could experience cost pressures, impacting corporate margins. Oil markets are also monitoring the tariff impact, as trade disruptions could influence energy demand projections.

Market Forecast: Volatility Ahead?

With reciprocal tariffs expected in the coming days and inflation risks mounting, traders should prepare for heightened volatility. Stocks, currencies, and commodities will react sharply to policy details and global responses. The Federal Reserve’s next moves will be critical in determining whether markets stabilize or face continued downside pressure.

For now, investors should expect choppy trading as markets digest Trump’s latest tariff escalation and its broader economic implications.

More Information in our Economic Calendar.