Trade Uncertainties Drive Gold To New Highs – Invest Your Way Through With These ETFs

While gold has historically been popular as a part of many portfolios, recent geopolitical events have demonstrated the sheer relevance of the yellow metal. Most notably, President Donald Trump's trade war rhetoric has sparked global anxieties, leading many investors to consider putting their money into the precious metal.

So far, the speculative activity has been lucrative for some investors, reinforcing the pragmatic nature of the rare commodity: when trouble strikes, gold tends to shine brightly.

Adding to the bullish sentiment, the global supply chain has become intertwined over the past several years, thus raising the complexity of geopolitical dynamics. With no country having the luxury of operating in a vacuum, tensions in local markets and abroad can manifest rapidly. Therefore, investors would do well to consider the broader impact of current events.

Geopolitical Tensions And Their Impact On Precious Metal Prices

As one of the preferred assets when investors face either volatility or uncertainty, gold has long been seen as a safe haven. While some critics have voiced skepticism regarding the yellow metal's relevance in the modern world, the importance of gold continues to shine through.

Last year in October, Bank of America issued a bullish research note on gold, which at the time reached a then-record high of just under $2,700 per ounce. According to analyst Michael Widmer, the precious metal remains "the ultimate perceived safe haven asset." Because of this reality and the fiscal challenges awaiting the winner of the 2024 presidential election, Widmer predicted that gold would reach the $3,000 mark by the first half of 2025.

So far, the prediction has been eerily accurate, underscoring a commonly understood correlation: when troubles mount, investors rotate into what they view as contextually sensible assets.

What's more, the current rally in the yellow metal is hardly a one-off event. Following Russia's invasion of Ukraine and the subsequent freezing of Russian central bank assets in 2022, the price of the commodity rose. This demand boost stemmed from other central banks increasing their gold reserves.

However, concerned investors don't just look at gold to mitigate volatility during periods of uncertainty. In particular, some experts have pounded the table on silver. Not only does the metal command significant monetary value, but industrial demand in areas such as solar panels, electronics and medical technologies has made silver critically important.

If that wasn't enough, the global inventory of silver is shrinking due to industrial consumption. With supply deficits only expected to widen, many knowledgeable investors are looking at the role silver could play in their portfolios.

In addition, purely industrial commodities such as copper, lithium and rare earth elements (REEs) are subject to geopolitical disruptions, primarily due to the geographic diversity of critical resources. This setup can create upward pricing pressure on precious metals, since resources like gold are often recovered as a byproduct of mining industrial metals.

The Nuanced Challenges Of Supply Chain Vulnerabilities

On the surface, the geographic resource dilemma seems like a manageable obstacle: an economic power simply needs to forge relationships with secondary suppliers of key resources. However, the nuances and complexities of the global commodity supply chain make that far easier said than done.

Perhaps the starkest example of such complexities is China. Essentially, the world's second-largest economy commands a monopoly over the processing of major heavy rare earth metals. This dominance also extends beyond REEs to many other critical materials and with China's dominance has come crucial economies of scale, leaving the U.S. to find itself at a disadvantage.

Put another way, even if the actual elements are mined elsewhere, supply chain realities mean that most roads eventually return to China – and that's not the only example of the nuanced complexity involved.

Mexico ranks as the largest silver producer in the world, accounting for 24% of global production. However, legislative uncertainty has previously stymied investments in the country's mining sector. Furthermore, the Council on Foreign Relations notes that Peru is the world's second-largest supplier of copper, and also a major source of other commodities like silver. Unfortunately, political unrest has previously impacted its mining output, leading to significant regional disruption.

Therefore, merely maintaining cordial relationships with commodity producers may not be enough as internal political winds can shift rapidly. As well, Russia's invasion of Ukraine firmly demonstrated that kinetic disputes could erupt at a moment's notice, adding substantial uncertainty and volatility to global supply chains.

Shifting Dynamics Amid A Potential Trade War

While headlines these days are largely focused on the Trump administration's tariffs, this contentious backdrop has also sparked increased demand for gold. Recently, the Wall Street Journal has reported that demand for gold is so strong that big banks are buying bullion bars in London and transporting them to New York on commercial jets.

It's not just banking customers that are craving the security of gold. Per the World Gold Council, central banks have maintained their bullishness toward the yellow metal into the new year. In January, global financial institutions reported 18 tons of net purchases of gold, with the emerging markets of Uzbekistan, China and Kazakhstan representing the top three buyers. As well, Poland and India have notably continued to add to their gold reserves.

Interestingly, anxieties associated with political instability may not be the only driver of precious metal prices. Because of the threat of instability, along with weakening economic indicators, some analysts believe that the Federal Reserve could cut the benchmark interest rate sooner than expected. If so, such a dynamic may weaken the dollar, thus raising the price of gold and other commodities on a relative basis. Furthermore, a global trade war could accelerate other nations' efforts to seek less dependency on the U.S. 

In terms of demand for silver, Grand View Research projects that the global solar energy systems market could expand at a compound annual growth rate of 15.7% from 2022 to 2030, culminating in a valuation of $607.8 billion.

One of the key drivers of solar systems growth is China – and its ambitions could easily drive up the price of silver. Thus, the ongoing debate about tariffs should not just be viewed as a political matter, but an issue that carries heavy implications for investors.

Adapting To Market Fluctuations With Precious Metal ETFs

Given the uncertainty surrounding the current geopolitical environment, many investors are turning to exchange-traded funds focused on precious metals as a mechanism to navigate market volatility. For those seeking an active approach, the Sprott Active Gold & Silver Miners ETF GBUG presents a relevant vehicle.

An actively managed fund, GBUG's holdings are adjusted based on real-time market conditions. Through rigorous fundamental analysis and active stock selection, GBUG focuses on identifying compelling miners while seeking to mitigate exposure to underperforming firms. Due to the adaptive nature of the fund – especially during this period of uncertainty – some investors may be willing to pay the higher expense ratio.

For those who prefer passive exposure to gold miners, the Sprott Gold Miners ETF SGDM offers a rules-based approach, tracking an index that prioritizes gold companies with strong revenue growth and high free cash flow yield. This method provides broad exposure to established gold miners, making it a potential option for investors looking to benefit from gold price movements while maintaining a structured weighting system.

Meanwhile, for investors focused on growth opportunities within the gold sector, the Sprott Junior Gold Miners ETF SGDJ targets small- to mid-sized gold exploration and development companies. Historically, junior miners have exhibited greater volatility than their larger counterparts. Still, they also offer the potential for outsized returns. Given the increased demand for gold in recent years, interest in early-stage mining projects has grown and SGDJ provides diversified exposure to this segment.

Outside of gold, the Sprott Silver Miners & Physical Silver ETF SLVR presents a way to capture silver's dual role as an industrial metal and monetary asset. SLVR tracks an index that includes both silver mining stocks and physical silver exposure, giving investors a broad-based strategy that aligns with both long-term industrial trends and monetary demand.

Fortunes Forged In Uncertainty: The Enduring Power Of Precious Metals

Geopolitical uncertainty has always been a powerful force in financial markets, and precious metals remain a time-tested hedge against volatility. As trade conflicts, shifting alliances and economic pressures continue to reshape the global landscape, investors are increasingly looking for ways to mitigate volatility within their portfolios. Gold, silver and other key commodities have long served as stores of value, offering stability when traditional markets face disruption.

At the same time, the metals sector is evolving. Supply chains are being restructured, industrial demand is rising and investment strategies are adapting to these new realities. Whether seeking a long-term hedge or positioning for market shifts, investors have a range of tools at their disposal to navigate these complex dynamics. As uncertainty persists, having strategic exposure to precious metals could prove to be an essential part of a well-balanced portfolio.

Click here to learn more about the different precious metals-focused funds Sprott has to offer.

Featured photo by Soofia Tailor on Pixabay.

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