The sudden threat of U.S. tariffs on gold bars took markets by surprise—and reaffirmed our enduring investment case for gold.

On August 7, U.S. Customs and Border Protection (CBP) published a letter stating that one-kilogram and 100-ounce gold bars—both deliverable against Comex contracts—should be reclassified and subject to tariffs. The announcement contradicted earlier expectations that such bars would remain exempt under HS code 7108.12, which had been excluded from the 10% reciprocal tariffs introduced in April. Caught off-guard, the markets quickly sent gold for December delivery to a record high, before reversing course four days later, when President Trump clarified the miscommunication.

To us, this incident further underscores the potential for extreme market volatility amid ongoing policy uncertainty. In such an environment, we believe risk management is ever essential, and that the case for gold remains strong.

The Perils of Policy Uncertainty

Gold is traded in major financial hubs such as London and New York, but each market uses different types of gold bars. In London, the standard is a large 400-ounce bar; in the U.S., the Chicago Mercantile Exchange (CME) settles gold futures using either one 100-ounce bar or three bars weighing one kilogram each. To ensure that gold can move smoothly between hubs, the gold bars often need to be melted down and reshaped to meet the requirements of each market, a process called “recasting.”

The early August surprise stemmed from classification ambiguity: While the U.S. had exempted gold bars under HS 7108.12, most Swiss gold exports to the U.S. were historically recorded under HS 7115.900530, a U.S.-specific code not addressed in the exemption; the CBP letter added confusion by excluding this code and focusing only on 7108.12 and 7108.13.

This uncertainty disrupted the London–New York gold pipeline, which relies on Switzerland to recast London’s 400-ounce bars into smaller formats suitable for Comex delivery. With 70% of global gold refining taking place in Switzerland, the threat of disruption to this flow had immediate, outsized consequences.

Four days later, President Trump publicly declared on Truth Social: “Gold will not be Tariffed!" Soon after, he announced that an executive order would clarify the misinformation surrounding gold tariffs, which helped calm the markets.

The Case For Gold Endures

We believe the recent confusion over gold tariffs underscores the potential for extreme market reactions in an uncertain policy environment, and that several factors continue to support gold as a compelling investment:

  • Central bank demand and de-dollarization. In recent quarters, central banks have been aggressively increasing gold reserves to diversify away from U.S. assets. Wary of significant exposure to U.S. government bonds and treasuries, the banks are turning to neutral assets like gold, reinforcing its role as a stable store of value.
  • Inflation hedge. Markets worry that trade policies, fiscal spending and rising U.S. debt could fuel inflation. We believe gold’s proven role as an inflation hedge is evident in strong jewelry demand1 and in growing investor interest amid concerns about a broader economic slowdown and equity market risks.
  • Geopolitical risks. We believe ongoing trade tensions and geopolitical uncertainty likely will sustain demand for gold as a welcome haven, reflected by strong ETF inflows thus far in 2025.2
  • Chinese investment. We believe potential depreciation of China’s currency (to counter U.S. tariffs) makes gold an attractive inflation hedge for Chinese investors.
  • AI-driven market risks. Elevated equity valuations, especially in technology, mirror past bubbles. In our view, gold could offer a beneficial hedge in the event of a potential equity market correction.
  • Tight physical market. Record-high gold demand is outpacing stagnant scrap supply, creating a supply-demand imbalance in support of gold prices.3
  • Monetary policy uncertainty. The Federal Reserve’s credibility faces pressure under the current administration, potentially leading to loose monetary policy and market distortions. Recent events, like the dismissal of a key labor statistician, further erode trust in economic data, in our view. As confidence in the financial system falters, gold may increasingly appear a more attractive alternative to riskier assets.

For more thoughts on how precious metals can play a role in broader investment portfolios, check out: Decoding Key Signals in the Relative Prices of Precious Metals.