Oil, Metals Drop as Trump Ignites Trade War Fears; Gold Gains
London/New York - Oil and industrial metals witnessed a decline after President Donald Trump's tariff threats against Mexico and Canada reignited fears of a global trade war. Gold, however, rose as investors sought refuge in haven assets.
The prospect of renewed trade tensions has raised concerns about global consumption and economic growth, casting a bearish outlook on commodities. Although Trump refrained from imposing tariffs on China, providing some reprieve for soybean and corn markets, the trade threat remains a significant concern.
"The tariff threat is real and carries the risk of lower economic growth," said Ole Hansen, head of commodities strategy at Saxo Bank A/S.
On his first day back in power, Trump indicated that import tariffs of up to 25% could be imposed on goods from Canada and Mexico by February 1st. These countries are major crude oil suppliers to the United States. Additionally, the president signaled support for domestic oil and gas production, potentially increasing American output and lowering prices.
The US dollar rallied, making commodities priced in the currency less attractive. Brent crude in London fell below $79 per barrel, while copper on the London Metal Exchange dipped beneath $9,200 per ton. Zinc, aluminum, and lead all declined by more than 1%.
"Tariffs pose the biggest risk to our industrial metals outlook," stated Ewa Manthey, commodity strategist at ING Groep NV. "They would disrupt trade flows and heighten economic volatility."
Gold, often benefiting from tit-for-tat tariffs, rose 0.4%. Silver futures experienced a brief spike after Trump's comments before paring gains. Mexico is a primary silver miner, and it remains uncertain if the tariffs would impact metal imports.
Grain markets saw some relief Tuesday as Trump made no additional statements on China, leaving traders uncertain about his trade policies towards the world's second-largest economy. Soybean futures in Chicago rose as much as 2.2%, and corn touched a one-year high.
The absence of immediate US tariffs on China, the largest soybean importer, raised hopes that trade disruptions in those markets might be less severe than anticipated. However, the threat of China tariffs persists, and retaliation could include purchasing fewer American agricultural products.
Regarding energy prices, Trump announced plans to refill the US strategic oil reserve to capacity. He also signed an order to withdraw from the Paris Climate Agreement and revoked offshore oil and gas leasing bans in US coastal waters.