Trump's Reciprocal Tariffs and Commodities Trading: Gold Rises, Copper Falls – Is Risk Aversion King?

TradingKey - Following U.S. President Donald Trump’s announcement of a comprehensive baseline tariff and reciprocal tariffs, international gold prices surged to new all-time highs, while concerns over sluggish global economic growth weighed on copper prices, which had risen sharply before the tariffs were announced. Industrial metals such as copper and aluminum also weakened.

On April 2, President Donald Trump unveiled his reciprocal tariff plan. The latest tariff framework targets all trading nations, with rates ranging from 10% to 49%, pushing the effective tax rate above 20%, the highest level in over a century. Goldman Sachs had previously estimated the effective rate would be just 15%.

The higher-than-expected U.S. tariff rates have intensified fears of global trade disorder and slowing economic growth, driving a surge in demand for safe-haven assets like gold and the Japanese yen.

On April 2, international gold prices broke through the $3,160 per ounce barrier, hitting a record high of $3,167.71 per ounce, and closed up 1.68%. However, due to recent record-breaking gains, profit-taking by investors caused gold prices to retreat by about $30 on April 3.

Despite this pullback, bullish sentiment on gold remains the consensus view among Wall Street institutions. Deutsche Bank expects the forces driving extraordinary gold price increases – central bank purchases, inflows into gold ETFs, and significant allocations by Chinese insurers to precious metals – to persist.

Under the new tariff regime, the tariff rate on all goods imported into the U.S. will rise from 2.5% in 2025 to 22%, a level last seen in 1910. Fitch analysts noted that this will have significant implications for both the U.S. economy and the global economy, potentially pushing many countries into recession.

Darkening growth prospects pressured industrial metals. NYMEX copper futures fell over 3% to $4.8843 on the 3rd, despite a 30% year-to-date surge fueled by pre-tariff panic buying that widened the disconnect between New York and London copper prices.

Traders noted that as investors reallocated funds into safe-haven assets and sold risky assets, industrial metals faced short-term pressure. Markets are closely watching retaliatory measures from U.S. trading partners, which could introduce further uncertainties to the global economy.