How Trump’s tariffs could impact the price of gold

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How Trump’s tariffs could impact the price of gold

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Gold historically has performed poorly when tariffs are high, and vice versa. It’s an important counter to the increasingly widespread narrative that higher tariffs are bullish for gold.

To be sure, as the threat of tariffs has escalated in recent months, gold GC00 has been in a strong bull market — surging above $2,900 this week for the first time ever. It is up more than 10% just since the beginning of the year and almost 45% over the past 12 months.

Nevertheless, it would be a mistake to attribute gold’s recent gains to tariffs. A case can be made that just the opposite has been the case historically, as you can see from the chart below.

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To construct the chart, I segregated all years since 1916 into two equally sized groups depending on whether the average tariff in a given year was above or below the median. (Average tariff was measured as a percentage of total imports; data courtesy of Dartmouth College economics professor Douglas Irwin.)

For each group, I measured gold’s average inflation-adjusted return over the subsequent one, three and five years (courtesy of

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). As you can see, gold on average has performed better when tariffs have been lower.

Care needs to be taken when interpreting these results, however. For starters, gold didn’t trade completely freely until the early 1970s, when U.S. President Richard Nixon put the final nail in the coffin of the gold standard. Also, as the chart shows, there have been relatively few “tariff regimes” in U.S. history, making it difficult to correlate changes in tariffs and gold prices.

For example, since the early 1970s, during which gold has risen from $35 an ounce to almost $2,900, there has been very little change in the average tariff level. As a percentage of total imports, tariffs have been below 3% for the past three decades, and never been above 5% over the past five decades. This is one reason I tried to measure the gold-tariffs correlation over a longer ******* than just the past 50 years.

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Furthermore, as statisticians remind us, correlation is not causation. Dartmouth’s Irwin pointed out in an email that prior to the 1960s, most tariffs were “specific duties,” which imposed a specific dollar amount per unit of import rather than a percentage. So when expressed as a percentage of total imports, tariffs prior to the 1960s were often inversely related to import prices and probably economic activity as well. So we need to be open to the possibility that any simple correlations do “not tell us anything,” as Irwin put it.

These complexities mean it would be going too far to confidently assert that tariffs are outright bearish for gold. But that doesn’t mean high tariffs are necessarily bullish for gold, either.

The bottom line: Tempting as it otherwise is to tell simple stories about why gold (or any asset) is going up or down, the truth inevitably is far more complex. Keep that in mind the next time you are urged to buy gold because of higher tariffs.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at .

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