This week, there was a surprising price development at first glance. Donald Trump announced far-reaching new tariffs, investors sold off their stocks, surprised by the harshness of the measures, the US dollar went into a tailspin, but the prices of gold and silver also retreated.

This was unusual insofar as gold typically behaves contrary to the US dollar. But now both prices fell in unison, albeit not at the same speed. The reason for this unusual development was that Donald Trump had previously declared that the precious metals gold, silver, platinum, and palladium would be exempt from the tariffs.

This removed the decisive reason that had led to the sharp rise in gold and silver prices in recent weeks. Because investors had feared tariffs, they had bought large quantities of physical gold in London and transferred it to the USA. The same development was observed in the silver market. Here too, a lot of silver was imported into the USA.

Arbitrage Traders Sensed Their Chance and Shipped Gold and Silver to the USA

This rush ended abruptly the moment Donald Trump assured that there would be no tariffs on gold and silver. This immediately leveled out the high price differences that had been observed between London and New York since early November. The difference was so large that banks and traders had an incentive to load planes and ships with so much precious metal that US trade data was distorted.

The difference between the front-month Comex gold and spot gold in London fell from over $62 on Wednesday to just $23 per ounce on Thursday, after it became clear that precious metals would not be drawn into the tariff conflict. For silver, the difference reduced from more than one dollar per ounce to just 24 cents.

The feared tariffs had never been fully priced in the USA, but the mere danger that tariffs could be imposed prompted traders to cover short positions in US markets, leading to a persistent difference. This in turn created an incentive to ship physical metal to the USA.

The Rush for Gold and Silver Also Distorted US Trade Data

Due to the physical movements of recent months, US precious metal inventories have risen to the highest level since records began, with gold inventories increasing by 26.5 million ounces and silver inventories by 174.6 million ounces since the end of November. The inflows reflected an increase in value of over $80 billion.

Gold imports contributed to the US trade deficit reaching a record high in January, prompting economists to remove the precious metal from their calculations to maintain comparability of monthly figures. Gold inflows to the USA are likely to have remained high in February and March as well. As some transactions made in recent weeks are still open, the figures for April are also likely to be affected by this development.

Does the End of Arbitrage Deals Also End the Rally in Gold? In the short term yes, probably not in the long run. The immediate motive to buy gold and silver and bring it to the USA has disappeared. This should ease the pressure on prices somewhat again.

In the Long Term, the Reasons for Buying Gold and Silver Have Not Changed

But in the long run, not much has changed. The debt of Western countries continues to rise and political systems are still characterized by chaos and great uncertainty. The current US president in particular is likely to contribute significantly to this uncertainty remaining in the markets through his way of conducting politics.

A bear market for stocks is now becoming increasingly likely. It increases the urgency for investors to look for asset classes that promise security and attractive returns even in times of recession. Gold and silver have repeatedly demonstrated their strength impressively in previous downturns. Therefore, they could again be in high demand in a potential recession.

For governments, an impending recession increases the urgency to limit the damage. This could be achieved through further tax breaks and payments, which in turn increase debt and the money supply in circulation. All of this suggests that inflationary pressure will likely remain high, which tends to favor investments in gold and silver.