Tariffs will hurt silver and base metals but boost gold demand; Trump will double down before he gives in – TD Securities
NEW YORK (April 3) The Trump administration’s massive ‘reciprocal’ tariffs will likely last at least until the 2026 midterms, and the secondary and tertiary effects will wreak havoc on silver and other industrial commodities, but will continue to boost gold demand as they stoke inflation and harm risk assets, according to analysts at TD Securities.
“US details on tariffs were more aggressive, more immediate, more broad, and seemingly more permanent than markets were expecting,” they wrote in a note on Thursday. “President Trump announced a new baseline tariff of 10% on all imports into the US, with 40 countries plus the EU being charged a further increase over and above that as a reciprocal tariff. Further sectoral tariffs will be forthcoming, in addition to the 25% tariffs on autos taking effect on April 3.”
“Our initial calculations suggest this is an average tariff rate of 30% on the 13 countries plus the EU, which account for almost all of the US trade deficit and $2.8tr in imports, and average 20% tariff rate on the remaining trading partners who account for a further $460bn of imports,” the analysts said. “Maximal revenue estimates from that would be $600bn, in addition to the maximal $200bn from the existing IEEPA tariffs on Canada, Mexico, and China, and potential revenues from sectoral tariffs of a further $200bn.”
TDS said the key takeaway is that the Trump administration's revenue projections are based on a basic calculation of existing imports multiplied by the new tariff rate, which is surely an overestimate. “There will be trade diversion and onshoring, which means most of that revenue is not likely to show up,” they wrote. “To the extent larger revenue numbers underpin larger domestic tax cuts, that will have significant fiscal implications for the US.”
The analysts believe that the 10% baseline tariff will prove non-negotiable, but some affected countries may succeed in negotiating down the reciprocal tariff rates.
“Moreover, to reinforce that this Administration sees tariffs as a positive tool, the order makes clear that if US manufacturing output worsens (as would happen in a recession), the Administration would look to increase tariff rates,” they warned. “US industrial production growth was effectively 0% in both 2023 and 2024.”
The analysts expect that if the tariffs remain in place, they will keep inflation high over at least the next 2 months, which is bad news for the Fed.
“CPI inflation could jump to at least 3.5%, according to our calculations,” they said. “We already forecast below-trend output growth for the rest of the year. The danger is that the larger the shock from tariffs, the greater the risk that long-term inflation expectations become unmoored. This would certainly limit the degrees of freedom for the Committee in terms of responding to a possible larger-than-expected negative hit to growth.”
TDS expects that the impact on commodities – including both base and precious metals – will also be profound.
“Significant pressure on bullion EFPs, given that 89% of open interest in Comex gold is currently covered by comex inventories, alongside 57% for silver (and, although Nymex platinum is covered to a lesser extent, domestic demand for physical is limited),” the analysts wrote. “That being said, a collapse in bullion EFPs will not necessarily prove bearish for flat prices. After all, we argue gold is surprisingly ‘overbought, but underowned,’ particularly when considering additional scope for safe-haven demand, macro funds' repleted war chests, significant Chinese buying activity, a large margin of safety against CTA selling activity, and a healthy set-up for quant fund leverage.”
The impact on silver and the industrial metals is less straightforward, however, as it’s more dependent on how tariffed countries around the world respond.
“Direct implications from today's announcement appear more significant for inflation than growth, which suggests the growth impact on industrial metals demand will be somewhat influenced by the threat of retaliation, risk sentiment and the wealth effect,” they said. “This is a challenge to accelerant of the #silversqueeze you can buy into — after all, the threat of tariffs inadvertently drained London vaults, but we see notable risks that recent inventory flows across commodities markets may prove stickier than anticipated, despite this outcome, as required to manage risk and preserve optionality against future tariff announcements from the US or otherwise in retaliation.”
“In the end, we assume most of these tariffs are likely to persist at least through the midterm elections in the US in end-2026,” they concluded. “It will take a sizeable economic shock in the US to have them removed sooner, which means we would need to see significant retaliation globally.”
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