The most notable thing about the tariffs for precious metals is that they were somewhat excluded from it. The tariffs made an exemption to “bullion” and that is leading to some readjustment it would seem in precious metals and some industrial metals this week. Silver is down another 2% today after having fallen by 6% in trading yesterday:
Silver (XAG/USD) daily chart
The fall now draws in the 100-day moving average (red line) with the 200-day moving average (blue line) also not too far away at $30.90. Those will be key levels to watch out for in the spot price above.
But the story for silver and why it is suffering is perhaps one that is better explained in the futures market.
Amid the risk of being slapped with tariffs, there was a surge in US premiums for precious metals as traders moved to cover short positions. That resulted in a widening differential between the front-month Comex prices and that for spot gold in London. The differential can be coined as “exchange for physical” (EFP).
In essence, that makes for an arbitrage opportunity in which resulted in an influx in physical shipments of these precious metals to the US.
However, as “bullion” is now excluded from tariffs, that differential has now evaporated and it does sort of put an end to the surge in precious metal flows to the US as a result.
Silver EFP
The differential tumbled from $1.00 to as low as $0.24 in the aftermath of Trump’s tariffs announcement.
In any case, this is just one part of the story. I would argue that a collapse in EFP is not necessarily the most bearish thing for prices in the big picture. At the end of the day, it’s still all about the moving parts in Trump’s tariffs.
Heightened global recession risks is still arguably the main thing that will impact silver and other industrial metals especially.
As for gold, it’s a slightly different story. Yes, what happened with silver above also happened with gold. But do be reminded that gold also holds many other key properties that are not likened to silver.
It is still a key hedge in times of uncertainty and a global economic slowdown. Besides its status as a haven asset, gold is also the hot commodity reserve of choice at the moment as central banks around the world are looking for a way to keep a strong “war chest”. The graphic below continues to show strong central bank buying activity over the last two years:
h/t @ Marissa Salim
And not to mention the fact that major central banks are also seeing increasing odds of adding to rate cuts now amid rising recession risks.
So while gold has not quite found its footing yet in the early days to the reaction of Trump’s tariffs, there is still strong reasons to expect that it will bounce back better than its peers should the tariffs narrative stay the course.
