Tariff chaos under Trump spells diverging fortunes for gold and oil

Gold is forecast to hit $4,000 next year on safe-haven appeal while oil suffers from demand concerns

Gold's is once again proving its viability as a safe-haven asset as investors flock to the precious metal amid economic uncertainty from US tariffs. Reuters

Gold and oil are facing diverging fortunes amid US President Donald Trump's tariff-driven chaos, as global commodity markets swing, with bullion touching records and crude remaining on a slippery slope amid fears of trade wars driving demand destruction.

The two key commodities typically have an inverse relationship, with one going up and the other heading the other way, as several factors influence their prices including disruptions in supply and demand dynamics, the strength of the dollar, the direction of monetary policy, geopolitics and overall investor sentiment.

The price of gold – a favoured asset for investors in times of economic volatility – may potentially rise by nearly 16 per cent more in 2025, based on current prices, and could hit $4,000 by next year, analysts at the US bank Goldman Sachs have said.

The precious metal, widely considered as a hedge against inflation, was down 1.23 per cent to $3,198.55 an ounce as of 5.24pm UAE time on Monday.

Gold has now risen by nearly 19 per cent since the January inauguration of Mr Trump and by more than 22 per cent year-to-date. It passed the $2,000 and $2,500 levels in May 2023 and August last year, respectively, and the key $3,000 barrier last month. On Friday, the precious metal surpassed $3,200 and hit another record at $3,237.

Goldman Sachs, the fifth largest US bank by assets, raised its gold price forecast by the end of 2025 to $3,700 an ounce, quoting stronger-than-expected demand from central banks and a boost from an increased risk of a recession.

In tail-risk scenarios – those situations in which losses happen due to a rare event – gold can even hit $4,500 by the end of the year, analysts at the New York City-based lender said.

“Our base case assumes that speculative positioning normalises, while the top end of the range reflects scenarios where elevated uncertainty could prompt further surges in positioning,” they said.

Swiss lender UBS, meanwhile, predicts gold to top $3,500 an ounce in 2025, emphasising its “attractive preference” for the precious metal amid “ongoing tariff-related and geopolitical risks, which have negatively impacted US and global economic prospects”.

Gold's surge to unprecedented levels “is being fuelled by a perfect storm of factors like escalating geopolitical tension, fears of inflation and a shifting interest rate outlook – the combination of which has driven stronger-than-expected demand from ETFs [exchange-traded funds] and speculators”, analysts at the Zurich-based lender wrote.

The combination of tariff-induced inflation risks and geopolitical uncertainty provides a robust foundation for gold prices.

The drivers that propelled gold higher – including persistent uncertainty focused on US-China trade tariffs, the potential inflationary pressures from tariffs, and questions around future central bank policy – remain firmly in place, supporting a constructive outlook for the precious metal.

Oil bearing the brunt

Meanwhile, oil – much like the stock markets – bore the brunt of Mr Trump's tariff-driven economic uncertainty. Crude prices plunged to their lowest levels in more than three years on April 4, as China hit back against the US tariffs with its own additional levies on American goods.

They plunged further on Wednesday, after Mr Trump increased tariffs on China, nearing levels seen during the tail-end of the worst of the Covid-19 pandemic four years ago, intensifying the market mayhem.

Prices have since rebounded. Brent, the benchmark for two thirds of the world's oil, was up 1.03 per cent at $65.43 a barrel. West Texas Intermediate, the gauge that tracks US crude, added 1.07 per cent to $62.16.

However, analysts have downgraded their projections for oil in 2025, quoting key factors such as soft demand, uncertainty from Opec+ supply and a decline in US shale stash.

“US tariffs and the trade war between the US and China will likely weigh on economic growth this year and are likely to result in oil demand growing at a slower speed this year,” Giovanni Staunovo, a strategist at UBS, wrote in a note on Monday.

The lender reduced its Brent 2025 price forecasts by $12 a barrel to $68, while WTI has been lowered to $64 per barrel.

“Fears that the global economy could end in a recession have resulted in elevated volatility in financial markets and in oil markets. There’s a high positive correlation between US equities and crude oil prices at present, which usually indicates that demand factors are driving prices,” Mr Staunovo said.

Goldman Sachs, on the other hand, expects Brent and WTI to edge down and average $63 and $59 a barrel, respectively, for the remainder of 2025, further falling to $58 and $55 in 2026, it said in a note.

This is a base case scenario that assumes the US avoids a recession and Opec+ supply rises “only modestly”, analysts at the bank said, adding that they expect global oil demand to edge up by only 300,000 barrels per day this year.

The Opec+ alliance of oil-producing countries last Thursday announced a larger-than-expected output increase. The group said it would add 411,000 bpd to the market next month, rather than 137,000 bpd as announced earlier.

Separately on Monday, the Organisation of Petroleum Exporting Countries slashed its oil demand forecast for 2025, amid the market uncertainty stemming from the sweeping tariffs and contradicting the rosier picture painted by its energy secretary.

Oil demand growth was revised down to 1.3 million bpd, with the revision described as a “minor adjustment” that is mainly based on the expected impact of tariffs on the market, the Vienna-based body said in its report on Monday. Demand is expected to grow by 40,000 bpd, it said.

On Friday, BMI Research, a unit of Fitch Solutions, also revised its Brent price forecasts, expecting the commodity to fall to $68 a barrel from $76 this year, and to $71 from $75 in 2026, as it anticipates “an expected supply overhang weighing on the market’s recovery”.

The changes were attributed to “the sharp rise in the US effective tariff rate and the heightened risks to the global economy”, analysts at BMI said.

“Oil consumption is relatively inelastic, but slowing economic activity will erode demand at the margins, curbing growth. More importantly, pervasive trade uncertainties and downside pressures on major economies, including the US, Mainland China and the EU, will negatively impact on Brent.”