The impact of Trump's tariffs revealed + How to invest in this booming commodity

Hi everyone,

Donald Trump’s ‘Liberation Day” has come and gone - and didn’t it create some sharemarket upheaval?

This morning, the US sharemarket crashed by around 4 per cent because of fears the trade war will send the economy into an economic recession ... plus OPEC decided to increase production in May, even though demand would drop if the global economy slowed. Remember Trump’s famous “drill baby drill” line? It looks like OPEC is saying he’s not the only one who can do that.

One of the members of the Federal Reserve said Trump’s tariff announcement would lift inflation and was bad for the economy, while some economists are now forecasting four official interest rate cuts this year in Australia - to stop us going into a trade war economic recession.

Reciprocal tariffs were imposed on all countries, including Norfolk Island. I wonder whether it is his next confiscation target after Greenland?! Just mind boggling.

It looks like Australian exports are being hit with a 10 per cent tariff as he classifies GST as a tariff, even though it is imposed on locally-made goods and services as well as imports. Strange. Economists are scratching their heads trying to understand the logic behind the formula.

But 10 per cent is at the lower level of tariffs being imposed and remember only 5 per cent of our exports go to the US, compared with 30 per cent to China alone. The US is our fifth biggest exporter of goods.

Before I get to a tariff rundown …

In this newsletter:

• The RBA is nervous … as we all are.

• All this uncertainty is making consumers nervous.

• Still, house prices bounce back after a short fall.

• Why rental increases are slowing, except in Brisbane.

• How depreciation on investment properties can be a winner.

• How to ride a modern-day gold rush.

• Gold shares vs physical gold? Which is the investment winner?

So, let’s look at Trump’s decision:

By coincidence, our February trade surplus was released yesterday and dropped to a four-year low of just $2.97 billion, well down on the $5.16 billion in January.

The value of Aussie goods exports tumbled 3.6 per cent and gold exports fell 21.4 per cent to $4.21 billion (we are the biggest gold exporter in the world).

Rural exports jumped 4.4 per cent to $6.95 billion and are up 26.1 per cent on a year - the strongest annual pace of growth since March 2023. Aussie meat exports soared 19.7 per cent in February to $2.45 billion and beef exports are up 51.7 per cent on a year ago - which is probably why Donald Trump sledged our beef exports in his press conference, saying the US buys a lot of our beef and we don’t buy much of theirs. I suppose we’re too polite to tell him it’s because US beef is susceptible to Mad Cow disease, and we don’t want that here.

But the big impact on the February trade surplus was the slump in our two biggest exports: coal, down 6.7 per cent and iron ore, down 2.9 per cent.

According to Commonwealth Bank (CBA) Group economists, the impact of Trump’s tariffs will equate to a small 0.2 per cent of Australian gross domestic product (GDP). The reality is Australia runs a trade deficit with the US. Using Trump’s logic, the US has been taking advantage of us for decades.

Direct Australian export exposure to the tariff increases totals to around $38 billion, or 1.4 per cent of GDP, with the largest impacted categories being beef, gold, pharmaceuticals, and travel.

The RBA is nervous … as we all are

It was no surprise on Thursday that the Reserve Bank kept official interest rates on hold at 4.1 per cent even though inflation is now back down in the preferred 2-3 per cent target range. As I mentioned in last week’s newsletter, financial markets were only factoring in a 7-9 per cent chance of another cut.

Even though the latest domestic economic data has tended to be weak and the uncertainty of the Trump tariff wars are worrying the markets, the RBA’s economic outlook is pretty unchanged. The March quarter CPI due on 30 April will be important in their decision making at the next board meeting on 20 May.

The statement attached to Tuesday’s decision confirmed that the current stance of monetary policy ‘remains restrictive’ and made reference to the decline in employment in February. That was hosed down by the following statement which noted, “Measures of labour underutilisation are at relatively low rates and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers”.

The statement also said that, “Wage pressures have eased a little more than expected”. But that observation was offset by the line, “Productivity growth has not picked up and growth in unit labour costs remains high”.

On the global economy, the statement noted that, “Recent announcements from the United States on tariffs are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures. Geopolitical uncertainties are also pronounced. These developments are expected to have an adverse effect on global activity, particularly if households and firms delay expenditures pending greater clarity on the outlook”.

At Michele Bullock’s press conference after the rate decision, she admitted the Board did not even consider a rate cut.

CommSec continues to look for an end year cash rate of 3.35 per cent (i.e. three further 0.25 per cent rate cuts over 2025. And they have the interest rate cuts pencilled in for May, August and November).

Obviously, the RBA is being incredibly cautious given what’s happening around the world. They wouldn’t want to cut rates again too soon and have to lift them again if inflation starts to accelerate from the tariff wars.

Rate cuts have a big psychological impact on consumers. After February’s rate cut, for example, consumer sentiment bounced to a three-year high in March.

When consumers feel more confident about the domestic economy and their household finances, they are more prepared to make high-commitment decisions such as buying or selling a home. The correlation between sentiment and home sales is clear from the graph below; the flow-on effect from the uptick in sentiment should translate into increased selling activity.

All this uncertainty is making consumers anxious

That weak economic data the RBA was talking about is reflected in February retail sales, which rose a modest 0.2 per cent - below economist forecasts. It was a pretty disappointing result given the February interest rate cut, rising property prices, low unemployment and the latest tax cuts.

The Australian Bureau of Statistics (ABS) noted the February lift in retail turnover was largely due to food and eating out, with demand for household goods falling after year-end discounting.

Across the major categories, spending at department stores rose the most (up 1.5 per cent to a record high), followed by food retailing (up 0.6 per cent to a record high), clothing, footwear and accessory items (up 0.4 per cent to a record high), and spending at cafes, restaurants and takeaway food services (up 0.2 per cent to a record high). But spending on ‘other’ retailing slid 1 per cent and household goods retailing declined 0.3 per cent, falling for a second consecutive month. Excluding food sales, spending eased 0.1 per cent in February, down for the first time since July 2024.

But … house prices bounce back after a short decline

Australian property values reached new heights in March, reversing a recent downward trend, according to CoreLogic’s (soon to be rebranded Cotality) national Home Value Index. Values increased 0.4 per cent over the month, the second consecutive month of growth in the national index, following a short three-month decline where values dipped 0.5 per cent.

Every capital city, except Hobart, rose in value - from a 1 per cent increase in Darwin to a -0.4 per cent fall in Hobart.

Sydney and Melbourne, which have the largest weighting in the Home Value Index, look to have turned a positive corner, with values across both cities rising over the past two months.

Following a -2.2 per cent decline between September 2024 and January 2025, Sydney home values remain just 1.4 per cent below their record high. In Melbourne, where the downturn has been long-running following the March 2022 peak, values remain 5.6 per cent below their record high, despite rising 0.9 per cent over the past two months.

Although values are still increasing across the mid-sized capitals, the pace of gains has slowed noticeably, especially in Perth, where downward revisions over recent months have put values slightly below peak levels from October last year. Perth home values have led the five-year upswing among the capitals, rising 75.4 per cent since March 2020.

Interestingly, high-end properties are coming back into favour after being outperformed by lower value properties for the last two years.

In Sydney, upper quartile values have increased by 0.6 per cent over the past three months compared with a 0.3 per cent rise across the lower quartile.

CoreLogic data shows that relatively expensive markets have historically shown stronger responses to interest rate cuts, especially houses in Sydney and Melbourne. Most of the remaining capitals continue to see the lower quartile record a higher rate of change relative to the upper quartile, however, the gap is getting smaller.

In the regions, the Mid-West of WA, which includes Geraldton, tops the list for annual growth with a gain of 25.4 per cent, followed by Queensland’s Townsville (23.5 per cent), Gladstone (22.2 per cent), Central Highlands (21.8 per cent) and Mackay (20.2 per cent).

Rent increases are starting to slow, except in Brisbane

According to real estate giant Ray White, we're seeing a national slowdown in rental growth. Average household sizes are returning to pre-COVID levels, creating additional capacity in the market.

While housing supply remains challenging, more homes are being built, and migration has stabilised. The national data shows rental growth declining from peaks of over 15 per cent after borders reopened to around 5 per cent currently.

This cooling trend is consistent across most Australian capital cities, with Sydney's growth dropping from 11.9 per cent to zero per cent, Melbourne falling from 10.2 per cent to 4.5 per cent, and Perth declining from a whopping 18.2 per cent to 5 per cent. However, Brisbane stands as the notable exception, with rental growth still accelerating from 4.3 per cent to 8.3 per cent.

Brisbane continues to experience high population growth from both interstate and international migration, creating persistent housing demand when other cities are seeing stabilisation. This pressure is compounded by construction constraints that exist elsewhere but are more intense in Brisbane.

Brisbane's construction sector faces extraordinary challenges on multiple fronts. Major infrastructure projects are consuming significant building capacity that might otherwise be directed toward residential development. At the same time, a boom in commercial construction has further diverted limited resources away from housing. The result is a perfect storm of high demand meeting constrained supply.

Adding to these woes, Brisbane has seen an unusually high number of construction companies entering receivership, delaying completions. This combination of factors has created a unique situation where Brisbane's rental market continues to tighten while other cities find relief.

While most Australian cities can expect some relief from the rapid rental increases of recent years, Brisbane renters will likely face continued pressure. The unique combination of population growth, construction limitations, and now natural disaster recovery suggests that Brisbane's rental growth will remain an outlier in the national trend toward moderation.

How depreciation of investment properties can be a big bonus

The federal budget has expanded the ‘Help to Buy’ scheme, with the government contributing up to 40 per cent of a residential property’s purchase price. Income caps have increased to $100,000 for singles and $160,000 for joint applicants, widening access for first-home buyers.

In a major policy shift, a two-year ban on foreign investors purchasing established homes will take effect from April 1, 2025, aiming to boost housing availability for Australians, with a $5.7 million ATO enforcement fund potentially extending these restrictions until 2030.

With foreign investors temporarily sidelined, lower interest rates, shifts in policy and strong depreciation benefits available, it could be an opportune time for investors to review their strategies and take advantage of these market shifts.

When it comes to maximising depreciation benefits, most investors naturally think the focus should be on newly built properties. But in their most recent newsletter, BMT Tax Depreciation, challenges the misconception that second-hand properties offer limited depreciation benefits.

BMT’s data shows that investors ineligible for pre-2017 deductions still claimed an average of $6,661 in depreciation deductions in the last full financial year. This is due to capital works deductions, which account for 85-90 per cent of depreciation claims and relate to the building structure and permanent fixtures. These deductions, applicable to residential investment properties built after September 15, 1987, can be claimed at a rate of 2.5 per cent annually for up to 40 years.

Investors renovating or upgrading a second-hand investment property can claim depreciation on newly purchased plant and equipment assets, as well as being entitled to claim depreciation on renovations and upgrades completed by a previous owner.

Additionally, assets and capital works removed during renovations may qualify for ‘scrapping,’ allowing investors to claim the remaining depreciable value as an immediate deduction in the year of disposal, subject to asset classification and purchase year.

BMT emphasises the importance of working with a specialist quantity surveyor to accurately identify and maximise all eligible tax deductions on a second-hand investment property.

Riding the modern-day gold rush

We’re in the midst of a modern-day gold rush fuelled by the global panic from Donald Trump’s tariff war and his wider financial and economic strategies.

When investors and financial markets are spooked they retreat to the safety of cash and gold. This week the gold price set all-time highs of over US $3,000 an ounce which converts to over AU $5,000 an ounce in Aussie dollars. Over the last three months gold has risen 20 per cent in value - its best quarter since 1986. Just 18 months ago the commodity was trading below US $2,000 an ounce. It has been crazy.

That’s why shares in Australian gold miners are going through the roof ... their costs of production are in Australian dollars but they sell their gold in US dollars.

A lot of investment gurus say every investment portfolio should include some gold. Here's why, and why there is a ‘gold rush‘ on at the moment.

A bull market

Investor confidence in gold is currently high with inflationary concerns, political instability, and rising debt levels making it a ‘safe’ investment. In times of uncertainty gold is seen as one of those safe investment havens to shelter your wealth.

Gold withstands wobbly economic times as it isn’t tied to any one currency. So, when major currencies like the US dollar lose value (due to inflation or political instability), gold maintains its value better than most assets.

Historically we’ve seen this to be the case: For example, in the 1970s, when inflation was through the roof and oil prices skyrocketed, gold surged from about US $35 an ounce in 1971 to nearly US $800 an ounce by 1980. Likewise, during the 2008 Global Financial Crisis (GFC) investors flocked to gold, seeking stability.

Today, with Trump’s tariffs, ongoing geopolitical tensions (such as Russia and Ukraine and Israeli airstrikes in Gaza), cost of living, growing global debt levels increasing inflation and risking currency devaluation, gold is proving to be a golden investment.

How gold helps protects your money

Every investment expert will tell you that diversification is key to managing risk. By spreading your investments across different assets, you reduce exposure to any single market or event. Including gold in an investment portfolio is one such way.

Many financial advisers recommend a sample diversification portfolio that looks like this:

• Stocks (40 per cent) - A mix of local and international markets, and industries.

• Bonds (25 per cent) - Government and company bonds.

• Real estate (10 per cent) - Property investments.

• Gold (5 per cent) - Protects against market downturns.

• Cash (5 per cent) - Provides stability.

• Alternative investments (5 per cent) - Riskier options like cryptocurrencies.

Diversifying reduces the risk of losing everything if one asset drops. While stocks offer growth and risk, bonds and cash provide stability, and gold acts as a hedge against market volatility and inflation.

Why is gold so valuable?

Gold’s value comes from its limited supply and high demand. Even though gold is plentiful, it’s difficult and costly to mine, making it more valuable. Though modern mining has made it easier, building mines is still expensive and dangerous.

Australia is the third biggest gold producer in the world and the biggest exporter.

Today, 50 per cent of gold demand is for jewellery, and 40 per cent is for investment (coins, bullion, bars, and ETFs). Central banks, individuals, and ETFs are the main investors. The remaining 10 per cent is used in industries like dentistry and tech due to gold’s excellent conductivity.

Gold has also been used in trade and to build wealth. Back in the day, paper money was actually backed by gold, with every printed note corresponding to an amount of gold held in a vault.

The thinking was, if paper money suddenly became worthless, we would still have something of worth to facilitate trade. This is one of the reasons investors tend to push up the price of gold when financial markets are volatile.

How to invest in gold

Talk to your adviser, but most experts say that if you’re adding gold to your portfolio, keep it under 10 per cent to avoid putting all your eggs in one basket. Here’s how to invest in gold:

• Bullion, bars, and coins: You can buy physical gold, but remember to factor in storage and insurance costs. Purchase from dealers, banks, or mints.

• Gold coins: Smaller amounts that can be more easily bought and sold, but usually it comes with a premium over the gold price.

• Gold ETFs: there are a range of exchange-traded funds available which hold a portfolio of gold mining shares through to actual physical gold. Buy through an online broker, but don’t forget that there are management fees.

• Gold mining stocks: Invest in gold mining companies. There is potential for higher returns if gold prices continue to rise, but do your research because there are good and bad mining companies.

• Gold mutual funds: Diversify with funds that invest in gold-related assets like physical gold or gold mining stocks. Management fees apply.

• Gold futures: These are contracts to buy or sell gold at a future price, offering potential high returns but with added risk. Requires a brokerage account.

• Gold certificates: This is ‘representative ownership’ of gold stored in a vault, but you don’t have physical access to the gold. Available through banks or dealers.

• Gold-backed cryptocurrencies: Cryptos like Paxos Gold (PAXG) combine gold with crypto flexibility, but are subject to crypto market volatility. Available on platforms like Binance.

Which one to choose?

Which gold investment suits you will depend on what you want. If it’s:

• Physical ownership? Go for bullion or coins if you don’t mind storage.

• Liquidity and ease? Choose gold ETFs or mining stocks.

• Diversification? Consider gold-backed funds or certificates.

Gold is a great way to add some sparkle to your investment portfolio but also, safeguard it in uncertain times.

Is investing in gold mining shares better than physical gold?

It is the age-old investment question ...

Share analysts say gold miners are the best option because they can leverage the gold price better because of market sentiment and corporate strategies.

The gold bugs say direct investment in the precious metal is the best option because gold miners can be hit with production delays and they often squander the profits they make during a gold boom by wasting money on high-priced mergers.

This chart compares the physical gold price to a major gold producer seems to settle the argument.

“Let's get physical” - as the classic song goes!