How do gold and silver respond differently in trade wars?

As precious metals, both gold and silver prices can rise sharply due to the economic uncertainty triggered by trade wars, as highlighted in recent days.

Global stock markets showed increased volatility in April as the value of equities reacted to sweeping US trade tariffs unveiled by US President Donald Trump on April 2^nd and reciprocal measures announced soon afterwards by many countries in response.

Gold, the ultimate safe haven

Fearing economic upheaval, investors dumped equities around the world in early April, with some markets suffering their heaviest falls since the Covid pandemic of 2020. With stock valuations falling, many traders sought the refuge of tangible assets like gold, driving prices to record highs of $3,501 an ounce on April 22, highlighting gold’s status as a safe-haven investment in troubled times.

The Trump administration’s fast-shifting tariffs policy has also led many to question the reliability of the US as a trading partner, sending the US dollar to a three-year low against other major currencies. A weaker dollar is naturally positive for dollar-denominated gold prices due to their inverse correlation.

Sharply increased tariffs are also seen as inflationary, as they tend to disrupt supply chains, limiting the supply of imported materials and products while increasing the price of domestically-produced goods. A rising price for consumer goods can increase demand for gold as a hedge against inflation and loss of purchasing power. 

Disrupted supply chains

The auto sector provides a clear example of why trade tariffs can disrupt supply chains and curb economic growth.

For example, a car produced in the USA can involve raw materials mined in one country, refined in a second country, turned into components in a third country, and assembled into parts in a fourth country, before being shipped for final assembly in the US. Rising tariffs can disrupt these complex cross-border supply chains, slowing business activity in the short-to-medium term as companies and whole sectors take time to adjust.

However, higher inflation in turn creates pressure on central banks to maintain or increase interest rates to keep inflation under control, and this can work against gold prices by raising the opportunity cost of holding non-yield-bearing precious metals.

While Trump’s stance on trade tariffs may be designed to help resurrect some US industries that have fared badly in a globalising world, the short-term impact has created severe uncertainty in financial markets that have played into both gold and silver prices in different ways. For more about the outlook for gold prices in 2025, see our Investor’s Guide to Gold in 2025.

Silver, the dual-use metal

Turning to silver, the grey metal can behave in a similar way to gold, with both assets recognised as precious metals. Silver’s price can (and often does) take a strong lead from its big brother, gold.

However, silver also bears some key differences, and these are thrown into sharper relief in the context of a global trade war. Silver performs a dual role as both a precious and an industrial metal, with about 55% of total demand coming from industrial applications.

Silver’s ability to conduct thermal and electrical energy and its antimicrobial properties make it a much sought-after metal in the production of a wide range of high-tech, industrial and medical products. These include solder and brazing alloys, electrical circuits, batteries and energy storage, solar panels, semiconductors, touch screens, medical and dentistry equipment, mirrors and optics, nuclear reactors, water purification systems and aerospace and defence technologies.

While silver can benefit from safe-haven flows, it is also exposed to economic conditions due to these industrial uses. If the emerging trade war continues to deteriorate, any contraction in global trade would be expected to curb manufacturing output, in turn denting global industrial demand for silver.

For more on the outlook for silver in 2025, see our Investor’s Guide to Silver in 2025.

Gold to silver ratio surges

These core differences in the roles played by gold and silver caused the gold-to-silver ratio to increase sharply as a result of the stock market uncertainty, as gold increased significantly in March and early April, while silver struggled to match those gains in a relative sense.

At the end of March, it took around 90 ounces of silver to match the value of one ounce of gold. As gold prices surged, the gold-to-silver ratio blew out to as high as 107 in late April.

Longer-term prospects

US President Donald Trump subsequently put most of the new import tariffs on hold for 90 days on April 9^th, while hitting China with an even higher tariff of 145%. The three-month halt on most tariffs brought a degree of calm to financial markets, following earlier fears of an all-out global trade war.

That said, the ongoing standoff between the US and China on tariffs still holds the potential to slow international commerce, including pushing up prices of goods made in China. China still produces around 80% of Apple’s products, for example, including around 90% of iPhones, to take just one product. A subsequent US tariffs exemption on electronic components serves to highlight their importance for producing smartphones and other mass electronic devices that are critical for modern industrialised societies to function.

Other major categories in China’s exports include computers, machinery, vehicles, plastics, clothing and toys. The impact of higher tariffs on China could include a slowing of production of goods in China while the country seeks to ramp up its exports to other countries to make up for lost trade with America. At the same time, other countries may find that reproducing goods previously made in China comes at a higher cost. Those higher costs would need to be either absorbed by the importing company, or be passed on to the consumer, or a combination of both.

One particular concern is linked to the risk of stagflation – a damaging combination of stagnating or even negative economic growth and rising inflation, which tends to erode purchasing power, leading to even lower living standards for ordinary households.

Gold and silver, then, can react in different ways to economic uncertainty in general, and trade wars in particular.

Should economic uncertainties persist, gold prices could continue to post fresh highs, particularly if central banks continue purchasing gold as part of a strategic shift away from reserve currencies. At the same time, a deepening trade war could also slash industrial demand for silver, weakening its price and further driving the gold-to-silver ratio higher.

Over the long term, however, silver looks set to benefit from a long-term shift toward high-tech growth industries such as renewable energy and energy storage, clean mobility, computer chips, data centres and Artificial Intelligence. And if faith in fiat currencies begins to erode, both gold and silver could benefit as tangible assets that are relatively scarce, offering protection against inflation and currency devaluation. To find out more about investing in gold-backed assets, visit our Gold (KAU) page.