Trump Trade War: Equity Markets Surge but Gold Exposes the Real Story

The Trump trade war has reignited volatility in equity markets as the August 1 tariff deadline approaches. Investors are closely watching the S&P 500, Nasdaq, and Dow Jones 30 for signals amid rising trade tensions. The S&P 500 continues to set new records, while the Nasdaq shows strength despite its exposure to global tech. The Dow Jones lags but remains poised for a breakout. Meanwhile, gold (XAU) is emerging as a true benchmark of value, revealing the hidden impact of inflation and monetary policy.

Tariff Deadline Fuels Volatility in S&P 500, Nasdaq, and Dow Jones

The looming August 1 deadline for reciprocal tariffs has created renewed uncertainty in equity markets. The S&P 500 continues to mark new record highs, as investors reassess the potential impact of tariffs on trade-heavy sectors. Lutnick’s comments reinforced the White House’s firm stance, triggering concerns about retaliatory measures that could disrupt global supply chains and corporate earnings.

The Nasdaq remains vulnerable due to its high concentration of technology and multinational companies. Firms dependent on international revenue may face margin pressures from tariff hikes and rising input costs. This uncertainty could dampen investor sentiment toward growth stocks. The risk may intensify if negotiations with key trading partners fail before the deadline.

Meanwhile, the Dow Jones may experience heightened volatility due to its exposure to industrial and export-oriented companies. Trump’s letters, signalling tariffs as high as 40%, have raised concerns about potential trade disruptions. Although some relief stems from the potential for post-deadline negotiations, markets will likely remain cautious until a clearer resolution on trade policy emerges.

Gold vs. S&P 500: Real Performance Hidden Behind Inflation

The monthly chart for the S&P 500 shows that the index has surged over 200% from June 2015 to June 2025. There were three major crashes in 2016, 2020, and 2025. However, these crashes remain within the ascending broadening wedge pattern, and investors felt limited pain because inflation masked the real losses.

However, when the index is compared with gold, the index shows a flat performance, revealing the true erosion of purchasing power.

Historically, the Federal Reserve has responded to market turmoil by easing monetary policy and injecting liquidity into the financial system. These actions helped stabilise asset prices and mitigate nominal declines. However, they also contributed to inflationary pressures, leading to real losses in purchasing power over time.

For instance, during the Great Depression, US equities lost nearly 90% of their value. In contrast, the early 1980s witnessed a period of tight monetary policy aimed at combating inflation, while the 2008 crisis led to massive liquidity injections through quantitative easing. These episodes demonstrate how policy responses can significantly impact monetary conditions, sometimes leading to prolonged currency depreciation.

The chart below supports the above explanation, as despite strong growth in the S&P 500, the S&P 500-to-gold ratio has approached the pivotal level of 1.70. A break below this level could lead gold to a new high.

Moreover, the rising debt, geopolitical moves, and inflation concerns are driving investors toward gold. As trust in fiat erodes, gold is reclaiming its role as a store of value, challenging the long-term dominance of the dollar and equity markets alike.

S&P 500 Breaks Record Highs Amid Trump Trade War Momentum

The S&P 500 has broken the record level of 6,147 and initiated a strong upside move. This breakout followed the emergence of an inverted head-and-shoulders pattern, which was later confirmed by a breakout at $4,600. These formations reflect strong price action and indicate further upside momentum in the S&P 500.

Nasdaq Surges as Tech Stocks Defy Tariff Pressures

The Nasdaq has also broken the record level around the 22,000 area, initiating a strong surge. The weekly chart shows a strong buy signal around the 16,500 area, followed by continued bullish momentum. This suggests that the Nasdaq is likely to move higher. The index remains above the 50-day and 200-day SMAs, which confirms strong bullish momentum.

Dow Jones Eyes Breakout at 45,000 Level

Despite the breakouts in the S&P 500 and Nasdaq, the Dow Jones has yet to surpass its record level of 45,000. However, the last three weeks of consolidation near this level suggest that the Dow Jones is also preparing to break above the 45,000 area. A breakout in the Dow Jones Industrial Average would further intensify the bullish momentum in the S&P 500 and Nasdaq indexes.