As the US government implements and negotiates tariffs on key trading partners, the ripple effects are being felt across the commodity markets.
In an interview with Invezz, industry expert and Trade Nation’s senior market analyst David Morrison examines how these trade policies are reshaping the landscape for crude oil, gold, and silver, creating both challenges and opportunities for investors.
With uncertainty looming over supply chains and pricing dynamics, Morrison sheds light on what the future may hold for commodities in this evolving economic climate.
Morrison also suggested investors to look at exchange-traded funds for investments rather than having direct exposure in commodities.
Edited excerpts:
Invezz: With the US tariffs on countries like Canada, Mexico, and China either in place or under negotiation as of March, how do you see these policies influencing the global supply and demand dynamics for crude oil, especially given North America’s integrated energy markets?
It’s complicated. Analysts, commentators, investors, and traders are finding this situation really challenging. The whole business of tariffs—whether they are 25% one minute, postponed the next, doubled, or removed—leads to a significant amount of uncertainty overall.
Regarding the oil market, Trump has been toning down tariffs on Canadian energy, as Canada exports a large amount of energy products to the States. The US has an incredibly high level of refining capability, which can process various types of crude oil.
While Canada mainly exports high-quality oil that requires little refining, the US has seen increased supply from its tar sands since 2005.
The supply lines for crude energy are complex, making it difficult to predict how tariffs will affect crude prices, whether Brent or WTI.
Currently, there is plenty of supply, especially with OPEC+ ending their production cuts next month.
Additionally, there could be an increase in Russian supply if there is a ceasefire in Ukraine. The demand side must also be considered.
If tariffs remain in place for an extended period, they could dampen demand for various products, leading to deflationary pressures that would negatively impact global growth and oil prices.
Invezz: As we know, OPEC+ is set to increase supply next month. What do you make of this decision, especially since the IEA has already indicated that the markets will be oversupplied this year?
It’s interesting that after OPEC+ has regularly pushed for production cuts, we find WTI retesting $65 support. This downside pressure on oil prices is significant.
I’m confused about why OPEC+ would decide to end production cuts now. Trump has made it clear that he wants to push down energy prices, urging domestic producers to increase drilling and promising deregulation.
However, if prices drop too low, it may not be worth it for producers to continue production.
I’m unsure how much lower oil prices can go; a recession could push prices down to around $30. While there has been talk of a recession, it doesn’t seem imminent in the US this year.
It’s going to come at some stage, but I suppose it would be a surprise if it was to be…in the next three to six months.
Absent a recession, we might find a floor for oil prices, but fundamentally, everything suggests that prices could go lower.
Potential for further gains in gold and silver
Invezz: You have mentioned that gold prices have been overbought in recent months. How do you anticipate the latest tariff threats affecting investor sentiment, and how do you see gold prices behaving in the short term, say over the next six months?
Gold is definitely in a bull market and has been for a while. I don’t see anything derailing that trend right now.
Although it was overbought about a month ago, the recent sell-off and consolidation around the $2,900 mark have reset the daily MACD (moving average divergence and convergence) to a more neutral level, allowing for potential upside.
The uncertainty surrounding tariffs will likely enhance gold’s appeal. Interestingly, the current gold bull market has not yet seen significant retail sector input.
In previous bull markets, retail demand surged, leading to blow-off tops. We haven’t seen that yet, which suggests there is still room for growth. Given the current environment, I see more upside potential for gold.
It will be fascinating to see where we go from ($3,000/ounce), as many people have set that as a target.
Invezz: You mentioned that retail demand for jewellery in India has been weak. How much of an effect does this have on countries like India and China?
That’s an interesting observation. In India and China, there is a much larger retail market for physical gold, and people have a better understanding of it compared to Europe.
If gold reaches $3,000, it might deter some retail investment due to higher prices, but I believe the idea of gold as a safe haven will still attract interest.
Invezz: Silver has a dual role as both a precious and industrial metal. How might US tariffs on major silver suppliers like Mexico create tension between industrial demand and safe-haven buying?
Silver has been lagging behind gold for a while, but I believe it is due for a catch-up.
Currently trading around $33 an ounce, it has the potential to reach its all-time high of just under $50 from 2011.
The situation with imports from Mexico is complex, and I wonder if Trump might exempt silver from tariffs due to its strategic importance in various industries.
Inflation and Federal Reserve
Invezz: The US dollar plays a crucial role in commodities like gold, silver, and crude. How do tariff announcements and fluctuations in the dollar affect these commodities?
Gold, silver, and crude oil are primarily priced in dollars. A weaker dollar typically leads to higher prices for these commodities. The Trump administration seems to favor a lower dollar, which could contribute to a commodity bull market, particularly for gold and silver.
Invezz: With the risk of inflation due to tariffs, how much do you expect the US Federal Reserve to cut interest rates this year?
Tariffs on goods, especially from Canada and Mexico, could significantly increase prices, potentially leading to decreased demand and deflationary pressures.
Initially, there was an expectation of one 25 basis point cut from the Fed this year, but that has shifted to three cuts due to concerns about growth and inflation control.
If we see a significant slowdown, I could see three or even four cuts this year.
Investment strategies
Invezz: Looking back at the tariffs during Trump’s first term, what lessons can we apply to predict the impact on silver and other industrial metals this time around?
It’s challenging to draw direct parallels. The commodities landscape is different now, and interest rates are not where they were during his first term.
While Trump threatened tariffs before, many exceptions were made, which mitigated their impact. This time, he seems more serious about implementing tariffs, leading to greater uncertainty.
Invezz: What strategies do you suggest for navigating the volatility in gold, silver, and oil markets amid the tariff situation?
It’s essential to stay invested but cautious. Traders should keep a close eye on the markets without overtrading. Volatility is increasing, and it’s crucial to avoid getting overexposed. There are opportunities on both the upside and downside, but clarity on tariffs and their duration is necessary.
Invezz: Between stock markets and commodities, which do you think are safer for investors right now?
There are more products available for exposure in stocks compared to commodities. I recommend using ETFs focused on specific sectors, such as mining or diversified miners, as a safer route than directly trading commodities.
The post Interview: Extended tariffs may trigger deflationary pressures, hit oil prices, says David Morrison of TradeNation appeared first on Invezz
