Beware the Ides of March.
It’s no secret US president Donald Trump is out to reshape the world economy — he’s said as much nearly every chance he gets.
But ‘G-Day’ could happen as early as next week, on March 3, when the ‘Trade War Titan’ imposes his first round of tariffs on Canada and Mexico, which happen to be two of the world’s largest precious metals producers, including gold and silver.
According to Kris Holthe, a precious metals broker with Calgary-based New World Precious Metals, it would be highly unusual for a one country to essentially tax currency. But Trump has been known to surprise.
“Nobody knows what he’s going to do,” Holthe said in an interview.
In response, gold buyers in New York have been buying thousands of tonnes of gold and hoarding it in anticipation of Trump’s looming pronouncement, on the assumption that imported bars will be subject to what amounts to a 25% tax.
That in turn has driven the price of gold to record highs in recent months in excess of USD$2,950 per ounce. But the buying has subsided. On Friday, it was down about $35 to $2,654.
The point is that gold is unlike other physical commodities like oil because it is the ultimate liquid asset that can be moved around at will, by plane or even boat.
Although it’s unlikely to have much of an impact on producers themselves — including Canada, which is the world’s third-largest — the effect on economies that rely on gold for hard currency is too early to assess. It could have a ripple effect on everything from currency exchange to interest rates.
Holthe says nobody knows what the real impact will be because it's never been done before, and not by the world's largest economy.
“The problem with the taxing or putting a tariff on Canadian gold is, gold is super easy to move around. All you got to do is put the bars on a plane so there's, it's very unlikely that it would hurt the Canadian bulk producers at all any sort of tariff. They would just sell it to somebody else. There's a huge demand worldwide,” he said.
The other impact of any tariff is to drive up the value of the US dollar, which effectively makes gold cheaper. That’s why it’s been on a nearly unprecedented downward trend, for nearly eight straight days.
Holthe said a metals tariff is bound to have an even bigger impact on silver, which is used extensively in manufacturing and industrial products like electronics and computers and cell phones.
About 60% of all the silver mined in the world goes into products like circuit boards and even light switches. And Mexico just happens to supply about half of all the silver used in the US.
That would definitely be felt by consumers, he said.
At the end of the day, Holthe said adding tariffs to either gold or silver probably isn’t the most economically astute thing for any country to do, but governments have done worse by printing money during the Financial Crisis and again during the COVID-19 pandemic.
“There's lots of dislocation happening right now, but, people are, are increasingly looking to gold to protect their wealth, because things are just like getting more and more uncertain over time,” Holthe said. “And the biggest economy on Earth — the US economy — their debt is just completely out of control.”
“We're on the brink of some sort of a financial shift,something needs to take place, right?” He continued. “Because, you know mathematically, these countries are just never going to pay this debt off, so they're going to have to find a way to kind of default and do a reset. People are wisely taking some of their wealth that they've earned and converting into metals. Because at the end of the day, if there is some sort of a financial reset, it's going to involve gold.”