Gold hits record as tariff fears, shutdown risk hit US markets
Precious metals surge as investors flee to safety amid political and economic uncertainty
Gold surged to record levels on Monday as investors fled to safety amid escalating trade tensions and the looming threat of a US government shutdown, signaling growing risk aversion across financial markets.
The precious metal traded between $5,065.58 and $5,087.10 per ounce according to market data, while silver ranged from $103.04 to $110.06 per ounce according to market data. The rally reflects what analysts describe as a classic flight to safety, with investors seeking shelter from mounting political and economic headwinds.
Central to the anxiety is the January 30 government funding deadline, which poses the risk of a partial shutdown if Congress fails to pass full-year appropriations. While the House has passed a spending package, disagreements in the Senate — particularly over funding for the Department of Homeland Security — threaten to derail the legislation and trigger a shutdown. Historical analysis suggests shutdowns often have limited long-term impact on the economy and markets, but they can cause immediate disruptions to economic data releases, federal services and air travel, short-term volatility in bond and currency markets, and temporary reductions in GDP growth if prolonged. Credit rating agencies have previously warned that continued political instability could lead to higher government borrowing costs and heightened market volatility.
Compounding the uncertainty are aggressive tariff threats that could escalate trade tensions with key partners. President Trump has threatened to impose a 100% tariff on all Canadian goods if Canada proceeds with a recently negotiated trade agreement with China, a move analysts warn would cause a significant cost-of-living shock for Americans by raising prices on essential goods and raw inputs. For Canada, such tariffs would threaten exports and growth, likely weakening the Canadian dollar and impacting commodity prices, while contributing to heightened volatility in currency and trade markets. The threat follows remarks by Canadian Prime Minister Mark Carney about diversifying Canada's economic dependence away from the US. While specific EU-related tariff threats were reportedly de-escalated after discussions at the World Economic Forum in Davos, existing tariffs from February 2025 remain in effect and have already increased the average tax burden on US households and reduced US GDP.
The confluence of these risks has investors rotating into assets perceived as safe havens. Gold's record performance is underpinned not only by geopolitical concerns but also by strong central bank purchases and low real yields, factors highlighted by recent commodity research. The metal's inverse relationship with real interest rates has amplified the rally, as expectations that the Federal Reserve may need to maintain rates amid inflationary pressures from tariffs have supported non-yielding precious metals.
Market analysts note that gold's surge to record levels typically serves as a barometer of investor anxiety. The sharp move above the $5,000 threshold — now with prices trading near $5,087 per ounce — represents more than just a nominal milestone; it reflects genuine concerns about the durability of economic growth and the potential for policy missteps that could derail the expansion. Silver's simultaneous rally, with prices trading around $110 per ounce, further underscores the breadth of the risk-off sentiment, as the industrial metal benefits from both safe-haven flows and expectations of continued monetary accommodation.
For equities, the implications are mixed. While a modest safe-haven rotation is normal during periods of heightened uncertainty, a sustained exodus from risk assets could pressure stock valuations, particularly in rate-sensitive sectors. The S&P 500 has historically recovered quickly following past government shutdowns, but the unique combination of political brinkmanship and trade tensions could prolong the volatility episode. Analysts at major investment banks have begun warning clients to position portfolios for potentially elevated volatility in the coming weeks, with a focus on defensive sectors and high-quality balance sheets.
Looking ahead, market participants will be closely monitoring two key triggers: the outcome of Congressional budget negotiations ahead of the funding deadline, and any signals of compromise on trade policy. A resolution to either issue could provide relief to risk assets and potentially ease some of the upward pressure on precious metals. However, if tensions escalate further, gold's record-breaking rally may have additional room to run as investors seek protection from what increasingly appears to be a perfect storm of economic and political risks.