Kris Holthe is a precious metals broker with Calgary-based New World Precious Metals
President-elect Trump’s threat to put tariffs on Canadian exports to the US will have little negative effect on the ongoing positive fundamentals that are driving the price of gold to recent record highs. The bigger question is how much Trump’s policy promises will accelerate the gold market momentum if he follows through with tariffs on the rest of the world's exports to the US. One of gold’s biggest price drivers is global financial uncertainty. Disrupting global trade with 25% US tariffs will no doubt increase global uncertainty, which is positive for gold prices.
Before we get into international tariffs, let’s dive into the Canadian gold export environment.
Canada is the world’s fourth largest gold producer, producing 220 tons annually. In 2023, total global mine production was 3,000 tons. Of the gold Canada exports, less than 20% goes to the US annually, so US imposing tariffs on Canadian gold would in all likelihood serve only to increase Canadian gold exports to other trade partners. Due to record breaking central bank buying, international demand for gold is so great that global markets will easily absorb Canada’s US export supply.
Meanwhile, US gold importers would suffer the supply loss and be forced to go to other markets to fill their requirements.
During the last election cycle, Trump sold his base with the idea he will impose tariffs on US trade partners. He believes tariffs will bring industry back to the US, reducing the need for income tax.
In fact, he proposed to impose tariffs so high that international companies would rather build their plants in the US. The idea is that imports sanctioned with high tariffs will not be able to compete in the world’s largest economy — the US, so that these importers would be forced to bring the industry back into the US. Trump has stated this will have the effect of taxing other countries for taking US jobs.
What he is not considering is that the US cannot have a boom time as the rest of the world contracts. The entire world economy is interconnected. Today, an economic pebble dropped on one side of the pond ripples to the other side.
Trump has spoken about creating a universal tariff of 10-20% for all imports. However , he does not appear to have considered how this will discourage trade with the US, while encouraging trade throughout the rest of the world.
For example, the original BRICS countries alone — Brazil, Russia, India, China and South Africa —make up 40% of the world’s population. Added to their number should be the populations of Iran, Egypt, Saudi Arabia and the United Arab Emirates, which joined the alliance in 2024.
Over thirty additional countries have expressed interest to join the alliance. Imagine the trade disruption a 20% tariff could cause from all the goods the US imports from these countries.
Then there’s the SWIFT system, a cooperative of banks and firms that provide the main messaging network through which international payments are coordinated. SWIFT accounts for roughly half of all annual high value cross-border payments worldwide.
The 2022 sanctions against Russia, excluding it from the SWIFT system, led the BRICS and other nations to strengthen their trade alliances. These countries understood if Russia can be removed from SWIFT due to international conflicts, they could too. Exclusion from SWIFT would mean being locked out of the largest global trading platform in the world. This would result in less trading options and lower volumes.
With these considerations in mind, let us return to the outlook for gold.
Over the past three years, the world has seen record central bank gold purchases. It has been these purchases that have caused the surge in gold price as countries shore up their central bank reserves to protect themselves from potential sanctions, that may be imposed due to alliances formed within these current international conflicts. It is thought the BRICS countries are building their gold reserves to settle trade imbalances amongst their ever-growing membership. They are taking steps to reduce their reliance on trade using the US dollar. The demand for gold will not decrease as the BRICS strengthen their economic partnership.
Putting tariffs on goods coming into any country is a losing proposition. There can be four outcomes.
First, it will reduce supply of goods coming into the country as the importers find new markets to sell their goods. If demand doesn’t decrease, the goods will cost more to the consumer due to supply-demand fundamentals.
Second, importers could include the cost of the tariffs into the goods, making them more expensive to the importer’s consumers.
Third, tariffs could result in counter-tariffs, resulting in increased cost of other goods to the importer’s consumer.
Finally, imposing tariffs will disrupt supply chains as companies scramble to find new markets. Disrupted supply chains have an inflationary effect. Imposing tariffs hurt both sides of the trade.
Will this ultimately bring manufacturing back to the US as Trump hopes?
It may. Time will tell.
But what will be the cost to the US consumer and to international economies?
As for the price of gold in this global environment… it is hard to see how it can do anything but rise.
Kris Holthe is a precious metals broker with Calgary-based New World Precious Metals.