Trump Gold Tariff / Trump drops another bomb, gold will now become costlier by Rs 10,000

Trump Gold Tariff: The US government has recently decided to impose duties on one-kilo and 100-ounce gold bars. According to a report in the Financial Times, this decision could have a profound impact on the global gold trade, especially on the flow of gold and silver from Switzerland to the US. This article analyzes the effects of this new tariff, its impact on Switzerland, and its potential consequences on gold prices in global and Indian markets.

New US Customs rule

On July 31, the US Customs and Border Protection (CBP) classified one-kilo and 100-ounce gold bars under category code 7108.13.5500, which will now be duty-free. Earlier it was expected that these bars would remain tax-free under code 7108.12.10, which was the only category of gold bars that did not attract any duty. This recategorization has dashed the hopes of gold traders and refineries.

Impact on Switzerland

Switzerland, the world's largest gold refining hub and a major supplier of bullion to the US, will be most affected by the decision. In the 12 months to June, Switzerland exported gold worth $61.5 billion to the US. Under the new 39% tariff, this volume will be subject to an additional duty of about $24 billion.

Christoph Wild, president of the Swiss Association of Manufacturers and Traders of Precious Metals, called it "another blow to the Switzerland-US gold trade". He said it was previously believed that gold remelted by Swiss refineries could be shipped tariff-free, but now that clarity is gone.

Refineries' response

Following the CBP decision, many Swiss refineries have reduced their shipments to the US or stopped altogether. Some consulted lawyers at length to understand whether any gold products still fell under the exemption. This uncertainty has impacted the pace of trading, which depends on momentum, certainty and clear rules in the gold market.

Importance of a one-kilo gold bar

The one-kilo gold bar, which is about the size of a smartphone, is the most traded bar on the Comex futures market in New York. It also represents most of the US bullion exports from Switzerland. In contrast, the London market uses larger bars of 400 troy ounces, which are minted in smaller sizes in Switzerland. This triangular trade system used to keep the global bullion market dynamic, but it is now under threat.

Gold prices in the global market

Following the news of this tariff, gold prices in the international market have reached record levels. Comex gold futures traded at $3,499.80 an ounce, up $46 an ounce at 12:15 pm, and hit a record high of $3,534.10 during the session. However, gold spot prices fell by $3.23 to trade at $3,393.15 an ounce. Prices remained stable in Europe and the UK, where gold was trading at 2,914.16 euros and 2,527.16 pounds an ounce, respectively.

Impact in India

Gold prices have hit record highs on India's Multi Commodity Exchange (MCX). Prices rose by Rs 509 per 10 grams to Rs 1,01,977 an ounce, and touched a record high of Rs 1,02,250 during the session. Gold prices have jumped by Rs 25,502 so far in 2024, representing a 33.22% return for investors.

According to Ajay Kedia, director of Kedia Advisory, this tariff has created panic globally, which has led to a rise in gold prices. He predicted that gold prices could rise by up to $150 an ounce in the next one month, reaching $3,640-3,650 an ounce internationally. In India, the futures market could see a rally of up to Rs 10,000.

Political and economic context

The tariff is part of the recent tension in US-Switzerland relations. Gold prices have risen 27% since the end of 2024, driven by factors such as rising inflation, questions over US debt sustainability, and the dollar's declining global dominance. This new tariff adds a political twist, which could further alter gold's cross-border flows and prices.