Surging U.S. Inflation Expectations Propel Gold Higher

Amid growing tariff concerns, U.S. consumers now anticipate 4.3% inflation over the next 12 months—a sharp 1 percentage point increase since January.

Since President Trump took office and introduced his policies, financial markets have faced a wave of uncertainty, driven by a mix of complex and often conflicting forces. This volatility has led to choppy market conditions, but for precious metals investors, uncertainty has been a boon. Over the past month, gold has surged by approximately $200, while silver has climbed $3, or 10%. One key driver behind this rally is rising U.S. inflation expectations, as newly released data confirms.

U.S. consumers' 12-month inflation expectations jumped to 4.3% in February, the highest level since November 2023, according to the University of Michigan’s monthly consumer sentiment survey. This 1.7 percentage point surge over the past three months is the sharpest increase since February 2020. The primary driver behind this spike is growing concern over President Trump’s tariff policies and their potential to trigger trade wars and drive inflation higher—a topic I covered in detail just a few days ago.

A decade-long chart of inflation expectations highlights the significance of February’s sharp jump. At 4.3%, we are now just 1.1 percentage points below the peak of 5.4% seen in March and April 2022—when inflation, particularly soaring gasoline prices, fueled the height of the 'Let’s Go Brandon' protest movement.

The recent surge in inflation expectations is further confirmed by other indicators, such as the 5-year inflation breakeven rate. This rate, calculated as the difference between the yield on a nominal 5-year U.S. Treasury note and a 5-year Treasury Inflation-Protected Security (TIPS), reflects the market’s forecast for average annual inflation over the next five years.

Other market-based indicators also reflect rising inflation expectations, such as the ProShares Inflation Expectations ETF (ticker symbol: RINF). This exchange-traded fund moves in tandem with inflation expectations, rising when they increase and falling when they decline. As shown in the chart below, RINF has been trending upward in recent months, mirroring the rise in the 5-year inflation breakeven rate.

Finally, commodity prices—one of the most traditional indicators of inflationary pressures—have been climbing in recent months. The S&P Goldman Sachs Commodities Index (S&P GSCI) has been rising, reinforcing the signals from other inflation indicators.

With multiple indicators pointing to rising inflation over the next year, it's no surprise that gold has surged since December, as I discussed in a recent article. Given these trends, there’s a strong likelihood that gold will push toward $3,000 and beyond in the near future.

After much speculation and negotiation, President Donald Trump agreed to delay the 25% tariffs initially imposed on Canada and Mexico. However, it's important to remember that this is merely a delay—not a cancellation. These tariffs could easily return in a month or two. Meanwhile, the 10% tariff on all imports from China remains in effect. Additionally, Trump has stated that tariffs ‘will definitely happen with the European Union’ and could take effect ‘pretty soon,’ though no concrete plans have been announced yet.

Inflation expectations have been rising in response to tariff risks because companies facing higher import costs typically pass some or all of these expenses on to consumers, driving prices higher. Additionally, the likelihood of a broader trade war increases as other countries retaliate with tariffs of their own—a process already underway with China. Fortunately for precious metals investors, these developments have been a tailwind for gold and silver and should be for the foreseeable future.