Update, 21 October 2026: This analysis was written in November 2025; its prices, figures and outlook are as of that date. On 3 November 2026 the gold Ask was $3,954 an ounce and silver $49.90, 27% and 58% below the records both set on 29 January 2026. For the record and the crash that followed, see gold price in 2026.
I want to start with full transparency. In early discussions about 2025 trade policy, conventional wisdom suggested that tariffs would immediately drive inflation higher, which would automatically benefit gold prices. This made logical sense, if tariffs act as a tax on imports, prices should rise, and gold should appreciate as an inflation hedge. Simple, right?
But logic isn’t data, and assumptions aren’t evidence.
A new study from the Federal Reserve Bank of San Francisco, published November 24, 2025, analyzed tariff changes using 40 years of international data from 16 advanced economies, including the United States, United Kingdom, France, Germany, Japan, and Australia, from the 1980s through 2022. The findings challenged conventional assumptions about tariffs, inflation, and their implications for gold investors.
What the Federal Reserve Data Actually Shows
The study found that immediately following tariff increases, inflation initially declines rather than increases. Specifically, a 1 percentage point increase in tariffs historically led to approximately a 0.1 percentage point (10 basis points) decline in inflation in the first year. Unemployment also rose by about 0.1 percentage points during this initial period.
This pattern held across multiple economic eras and countries, suggesting that tariffs behave less like a simple tax on consumers and more like a demand shock, similar to tightening financial conditions. When tariffs increase, consumers and businesses reduce spending, delay investment projects, and reassess risk, which slows price growth rather than accelerating it in the short term.
This directly contradicts the most common talking point: “Tariffs automatically cause inflation across the board.”
The Critical Part Most Investors Miss
The study doesn’t stop at year one. Over time, the effects reverse.
By years two and three, inflation surges back, rising approximately 0.1 percentage points per 1% tariff increase. This delayed inflationary impact peaks around year three and then slowly begins to wane by year four.
The researchers explain: “Demand factors prevail in the short run, but supply factors dominate in the long run.”
Initially, businesses and consumers pull back spending due to uncertainty, which depresses demand and temporarily lowers inflation. But over time, higher input costs from tariffs get passed through supply chains. Equipment investment becomes more expensive, production costs rise, and those costs eventually show up in consumer prices.
Meanwhile, unemployment rises initially but then returns to normal levels or even declines slightly over the same period.
What This Means for Gold Investors
The Federal Reserve research reveals that tariffs create time-varying effects: deflationary in the short run through demand suppression, but inflationary over the medium term as supply-side costs work through the economy.
For gold investors, this timing matters enormously.
Short-Term Considerations: The Demand Shock Phase
During the initial 12-month period following major tariff increases, when deflationary pressures emerge from reduced consumer and business spending, gold faces headwinds from:
- Lower immediate inflation expectations: If headline inflation declines temporarily, some investors may reduce inflation hedge allocations
- Dollar strength from safe-haven flows: Trade policy uncertainty often drives capital toward U.S. dollar assets initially
- Reduced consumer purchasing power: Physical jewelry and retail coin demand may soften as households face economic uncertainty
However, as examined in our analysis of gold as a liquidity crisis indicator, gold’s weakness during economic uncertainty has often been followed by gains once policy responses begin, though that pattern is not guaranteed.
Medium-Term Drivers: The Supply-Side Inflation Surge
The 2-4 year period following tariff implementation, when supply-side inflation dominates, is the phase gold bulls see as most favorable:
- Persistent above-target inflation: Central banks face inflation that proves stickier than their targets, eroding real returns on fixed-income assets
- Policy response dilemmas: The Federal Reserve must choose between fighting inflation (raising rates, harming growth) or supporting growth (keeping rates low, accepting inflation)
- Currency debasement risks: If policymakers prioritize growth over inflation control, monetary expansion supports gold’s role as a store of value
According to World Gold Council Q3 2025 data, gold demand reached a record 1,313 tonnes in the third quarter at record prices (the LBMA gold price averaged $3,457 in the quarter and passed $4,000 in October). Central banks bought 634 tonnes through Q3, buying that analysts read as long-term conviction about gold’s role.
How Trade Policy Uncertainty Can Affect Gold
Beyond the direct inflation effects, tariffs create broader uncertainty that gold analysts see as supportive:
Supply Chain Disruption: Companies restructuring global supply chains face increased costs, longer lead times, and operational complexity. This translates to persistent inflation pressures that support gold as an inflation hedge.
Geopolitical Tensions: Tariff policies often trigger retaliation from trading partners, escalating into broader trade disputes. As examined in our analysis of the household debt crisis and gold, geopolitical uncertainty consistently drives safe-haven demand for precious metals.
De-Dollarization Trends: Aggressive use of tariffs can accelerate global efforts to reduce dependence on dollar-based trade. Central banks diversifying reserves away from dollars and toward gold create sustained structural demand regardless of short-term price movements.
Important Caveats: Why This Time Could Be Different
The Federal Reserve researchers emphasize that their estimates should be interpreted with caution. The tariffs enacted in 2025 are unprecedented in magnitude and scope compared to the historical data used in the analysis.
The study notes that effects can vary significantly depending on:
- Permanence perceptions: Whether tariffs are viewed as temporary policy tools or permanent structural changes affects how businesses and consumers respond
- Retaliation patterns: Trading partner responses can amplify or mitigate domestic economic impacts
- Supply chain adaptability: How quickly companies can restructure sourcing and production affects the magnitude and timing of cost passthrough
- Policy uncertainty: Unpredictable future trade policy creates additional risk premiums and hesitation in business investment
As detailed in our examination of Federal Reserve liquidity stress and gold, when policy uncertainty intersects with liquidity constraints in the financial system, gold benefits from multiple reinforcing factors.
Historical Context: Gold During Previous Tariff Episodes
The 1970s Stagflation Precedent
The 1970s featured a toxic combination: trade tensions, persistent inflation, and mounting economic uncertainty. The Nixon administration’s import surcharge in 1971, combined with broader protectionist sentiment, contributed to an environment of economic instability.
Gold, newly freed from the $35 per ounce Bretton Woods peg, surged to over $850 by January 1980, delivering returns exceeding 2,300%. This occurred as policymakers struggled with the same dilemma highlighted in the Federal Reserve study: choosing between fighting inflation and supporting growth.
The 2018-2019 Trade War
More recently, the 2018-2019 U.S.-China trade tensions provided a modern precedent. Gold initially consolidated as markets digested the implications, then rallied from approximately $1,200 per ounce in mid-2018 to over $1,550 by late 2019, representing a gain exceeding 29%.
Critically, gold’s appreciation continued even as the U.S. Dollar Index remained elevated, demonstrating that trade policy uncertainty can support gold regardless of dollar strength.
How Investors Approach These Dynamics
The Federal Reserve research shows that economic relationships are rarely simple or linear. The tariff-inflation-gold dynamic involves timing, magnitude, and multiple competing forces.
Approaches Some Investors Take
Medium-term focus: some investors look past the first year to the period two to four years after tariff increases, when the study found inflation picks up. That does not tell anyone what gold will do in a given year.
Physical ownership: physical gold in coins and bars held directly carries no counterparty risk, though its price still moves with the market.
Dollar-cost averaging: given the uncertain timing of tariff effects, some buy at regular intervals rather than trying to time entries; it does not prevent losses if prices fall.
Silver: silver tends to move more than gold in both directions and has large industrial demand, so trade policy affecting technology and renewable-energy supply chains can affect it more.
Central Bank Buying
Central banks kept buying gold at record prices. In the World Gold Council’s surveys, reserve managers cite reasons such as diversification, gold’s performance in crises and concerns about the dollar.
As examined in our analysis of Q3 2025 gold demand, many analysts regard this official buying as one of the main drivers of the rally.
Why This Matters Beyond Headlines
When it comes to investment outcomes, what hurts you isn’t what you don’t know, it’s what you’re certain is true that turns out to be incomplete or wrong.
If the longstanding assumption that “tariffs immediately cause inflation” was incomplete, we must ask: what other economic relationships are accepted as fact simply because they became tradition?
The real skill isn’t repeating what experts say or following conventional wisdom. It’s staying flexible when new evidence challenges old beliefs, and positioning portfolios for complex outcomes rather than simple narratives.
The Bottom Line
The latest Federal Reserve research reveals that tariffs have complex, time-varying effects: deflationary in the short run through demand suppression, but inflationary over the medium term as supply-side costs work through the economy.
Read alongside gold’s history, the study suggests a few points to keep in mind; none is a forecast:
- The first 12 months after major tariff increases: the study found lower inflation and slightly higher unemployment, a period of heightened uncertainty
- Years two to four: the study found inflation rising as supply-side costs pass through, the phase gold bulls see as most supportive
- Past patterns may not repeat: the researchers caution that the 2025 tariffs are larger than anything in their data
- Physical metal held directly avoids counterparty risk, but not price risk
As examined throughout our analysis of gold’s structural bull market, supporters base the case for precious metals on structural factors rather than short-term forecasts: persistent fiscal deficits, monetary system fragility, currency debasement trends, and geopolitical uncertainty.
The Federal Reserve’s tariff research confirms that policy decisions create complex, multi-year economic dynamics. Gold’s supporters see its role as a hedge against policy mistakes, inflation surprises and systemic risks as more relevant when trade policy adds another layer of uncertainty.
Conclusion: Data Over Narrative
I focus on markets, money, risk, incentives, and outcomes. If the data changes, you have to update, because the price of ignoring reality is always paid in dollars.
The Federal Reserve’s November 2025 research provides crucial data that challenges simple narratives about tariffs and inflation. Neither “tariffs always cause inflation” nor “tariffs don’t cause inflation” tells the complete story. The timing, magnitude, and multiple channels through which tariffs affect the economy matter enormously for investment positioning.
For anyone following gold in 2025, the study is a reminder that the link between tariffs, inflation and gold depends on timing, and that outcomes are uncertain.
Bullion Trading LLC sells gold and silver coins and bars online and at its New York store. This article is not investment advice.