Tariffs and Inflation: Will these be the biggest market movers of 2025?

The financial markets are currently navigating through turbulent waters as two powerful forces-tariffs and inflation-create a complex economic landscape. Recent developments in gold and copper markets illustrate how these dynamics are shaping investor behaviour and commodity prices. But which will ultimately drive more market volatility?

 Let's explore the interplay between these economic factors.

Gold rises as tariffs and rate cut expectations converge

Safe-haven gold has been on an upward trajectory, recently trading at $2,933 with gains of 0.63%. This rise comes despite higher US Treasury yields and a stronger US Dollar-typically factors that would pressure gold prices downward.

The latest US inflation data showed consumer prices increasing by just 0.2% in February, a welcome cooldown after January's 0.5% surge. This softer inflation report has reinforced market expectations that the Federal Reserve might implement interest rate cuts in the near future.

However, market analysts caution that this inflation improvement could be short-lived. President Trump's aggressive tariff policy, which saw 25% duties on all US steel and aluminum imports take effect recently, threatens to trigger a second wave of inflation as import costs rise across the board.

"Lower US inflation may give the Fed more leeway to cut interest rates," noted industry experts, highlighting how non-yielding gold typically thrives in low-interest environments and during periods of economic uncertainty.

Copper markets brace for Tariff impact

Meanwhile, the copper market is experiencing its own tariff-driven dynamics. Despite a recent 0.8% decline to $4.67 per pound for May delivery, copper prices remain 16% higher year-to-date in 2025.

President Trump's executive order initiating a Section 232 review of copper imports has created significant market anticipation. Major traders like Glencore and Trafigura are reportedly rushing to ship copper to the US ahead of potential tariff announcements, creating an interesting market arbitrage.

With tariffs not yet in place, there is a strong incentive to send metal to the U.S., which is tightening markets in other regions, according to a recent analysis by Morgan Stanley. The bank remains optimistic about copper, calling it their preferred base metal despite potential concerns about future demand.

This tariff anticipation has created a notable price gap between the London Metal Exchange (LME) and Comex prices, with US copper prices trading at premiums of up to $1,300 per tonne. Consequently, US copper inventories have surged to their highest levels in over six years.

Inflation vs tariffs: The dual threat to market stability

The convergence of tariff policies and inflation concerns creates a particularly volatile environment for investors. On one hand, aggressive tariffs on imports are expected to raise costs across the economy, potentially reigniting inflation that had begun to cool. On the other hand, existing inflation pressures continue to influence central bank policy and market sentiment.

Adding to these concerns, recession fears have resurfaced in the US, with President Trump acknowledging the country is in "a period of transition." Meanwhile, China continues to battle deflation, with its Consumer Price Index falling 0.7% year-over-year in February-its fastest decline in 13 months.

Central bank gold reserves surge 

Amidst this uncertainty, central banks globally continue to accumulate gold reserves. The World Gold Council revealed that the People's Bank of China and the National Bank of Poland added 10 and 29 tonnes respectively in the first two months of 2025. This ongoing institutional demand provides further support for gold prices, which analysts suggest could test the $2,950 mark soon.

The question remains: Will tariffs and inflation be the biggest market movers of 2025? 

Their combined impact will depend on how they evolve. If tariffs drive a new wave of inflation, markets could face heightened volatility. However, if inflation stabilises despite trade pressures, other forces may take the lead in shaping market trends this year.

Technical analysis: Key levels to watch

At the time of writing, Copper is rising with bullish signals evident as prices remain above the moving average with RSI rising steadily. Key levels to watch on the upside are $10,000 and $10,145. On the downside, key levels to watch are $9,338 and $8,970.

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Gold is also surging within striking range of $3,000. Despite clear bullish signs, RSI towering past 70 hints at overbought conditions and a potential reversal.

Key levels to watch are the $3,000 target on the upside, and on the downside $2,860 and $2,817.

Source: Deriv MT5

You can get involved and speculate on the price of these two incredible assets with a Deriv MT5 account and Deriv X accounts.