Why Oil and Gold Prices Are Surging Amid Escalating Trade War Fears
Geopolitical Tensions and Their Impact on Global Markets
Global markets are bracing for fresh volatility as trade war fears intensify. On March 12, 2025, oil and gold prices climbed sharply, reflecting investor anxiety over escalating tensions between the U.S. and the European Union. The EU’s retaliation against former President Donald Trump’s tariffs on steel and aluminum has reignited concerns about a prolonged economic standoff, sending shockwaves through commodity and currency markets.
This article unpacks the driving forces behind the surge in oil and gold prices, analyzes the pound’s resilience, and explores what lies ahead for investors navigating this fragile economic landscape.
The Pound’s Resilience Amid Trade Uncertainties
The British pound (GBP/USD) held steady at $1.2933, nearing its highest level since the 2024 U.S. election week. This stability stems from cautious optimism about a potential 30-day ceasefire in Ukraine, brokered during talks between Ukrainian officials and U.S. Secretary of State Marco Rubio in Jeddah. However, Trump’s tariff policies continue to weigh on risk appetite, capping the pound’s gains.
Key Factors Influencing Sterling:
- US Dollar Index (DXY): The greenback rebounded slightly, rising 0.2% to 106.50, after Trump scrapped plans to double tariffs on Canadian steel and aluminum. Canada agreed to retract a 25% surcharge on electricity exports to the U.S., temporarily easing trade friction.
- EU Retaliation: The EU announced countermeasures targeting €26bn (£22bn) of U.S. goods, responding to Trump’s 25% tariffs on metal imports. Analysts warn this could spiral into a broader trade war, reminiscent of the 2018-2020 U.S.-China disputes.
- GBP/EUR Dynamics: Sterling dipped against the euro (GBPEUR=X) to €1.1848 as the single currency gained traction amid Eurozone solidarity against U.S. trade policies.
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, noted, “The ‘Trump bump’ has turned into a slump, with investors bracing for volatility. Retaliatory tariffs from the EU and China could disrupt global supply chains, much like Brexit’s impact on the UK-EU trade.”
Gold: The Safe-Haven Asset in Volatile Times
Gold prices edged higher on March 12, with spot gold rising 0.4% to 2,921.16perounceandgoldfuturesclimbingto2,921.16perounceandgoldfuturesclimbingto2,924.00. The precious metal’s appeal as a safe-haven asset strengthened amid escalating trade tensions and anticipation of U.S. inflation data.
Why Gold Prices Are Rising:
- Trade War Hedge: Investors flock to gold during geopolitical uncertainty. Trump’s tariffs and the EU’s retaliatory measures have heightened fears of slowed global growth, boosting demand for non-yielding assets.
- Fed Rate Cut Speculation: Traders await the U.S. Consumer Price Index (CPI) report, which could influence the Federal Reserve’s stance on interest rates. Lower rates reduce the opportunity cost of holding gold, often driving prices higher.
- Technical Support: Chris Beauchamp, Chief Market Analyst at IG, highlighted, “Gold faces resistance near 2,930buthasstrongsupportat2,930buthasstrongsupportat2,880. A breakout depends on macroeconomic catalysts like the CPI or Fed meeting outcomes.”
Upcoming Catalyst – Fed Meeting (March 18-19):
The Fed’s response to inflation risks and trade-related economic headwinds will be pivotal. While immediate rate cuts are unlikely, policymakers may signal dovish shifts if tariffs exacerbate price pressures.
Oil Markets Navigate Trade Wars and Supply Dynamics
Oil prices rebounded on March 12 after a volatile week. Brent crude futures (BZ=F) rose 0.4% to 69.33perbarrel,whileU.S.WestTexasIntermediate(CL=F)climbed0.566.57. However, gains remain fragile amid conflicting forces:
Key Drivers for Oil:
- Trade War Pressures: Trump’s tariffs on Canada, Mexico, and China have disrupted crude supply chains. Retaliatory measures, like China’s levies on U.S. energy exports, threaten long-term demand.
- OPEC+ Output Plans: The producer group plans to boost output by 500,000 barrels per day starting in April, raising concerns about oversupply.
- U.S. Inventory Data: The American Petroleum Institute reported a 4.2 million-barrel rise in crude stocks, signaling weaker demand. Investors await official EIA data for confirmation.
Trump’s recent remarks about a potential U.S. recession and a global economic “transition period” further rattled markets. Analysts warn that prolonged trade disputes could mirror the 2019 oil price slump, when Brent fell below $60 amid U.S.-China tensions.
Investor Strategies in a Fragile Economic Climate
With the FTSE 100 (^FTSE) up 0.4% to 8,527.41, equity markets show tentative optimism. However, the broader outlook remains clouded by trade uncertainties. Here’s how investors can navigate the risks:
- Diversify into Safe Havens: Gold and government bonds offer shelter during volatility.
- Monitor Currency Swings: A stronger dollar (DXY) could pressure emerging markets and commodities priced in USD.
- Watch OPEC+ Moves: Any deviation from planned output hikes may stabilize oil prices.
- Track Inflation Data: The CPI release and Fed meeting could redefine market trajectories.
Conclusion: Navigating the Crosscurrents
The interplay of trade wars, geopolitical tensions, and central bank policies has created a complex environment for commodities and currencies. While the pound benefits from ceasefire hopes, gold thrives on uncertainty, and oil balances supply risks against demand fears.
Investors must stay agile, leveraging data like the CPI and OPEC+ decisions to anticipate shifts. As Susannah Streeter cautions, “Tariff tit-for-tats could unravel the fragile recovery, making preparedness paramount.”