Tariffs, Taiwan Tensions, and Fed Messaging Unsettle Investors

Global markets endured a sharp pullback last week, rattled by a storm of rising geopolitical risks, aggressive trade moves, and firm signals from the US Federal Reserve that interest rates aren’t coming down anytime soon. The result: A broad flight from risk assets, a turbulent swing in commodity prices, and growing investor uncertainty.

April 4 was a rough day on Wall Street and arguably the worst since the early pandemic panic. The S&P 500 tanked 6%, while the Dow tumbled over 2,200 points. Tech didn’t fare any better; the Nasdaq slid close to 6% as traders scrambled to reprice risk after President Trump unveiled a sweeping round of tariffs. China responded with a 34% counter-tariff, and the European Union signalled retaliatory steps of its own.

The fallout wasn’t limited to Wall Street. Benchmarks in Japan and Europe each fell roughly 2.7%. South Korea’s Kospi also dipped and was caught in the regional crossfire. The US dollar has weakened too, hitting its lowest point since October, and Goldman Sachs now sees a 35% chance of recession.

Taiwan Becomes Flashpoint in Broader Global Anxiety

Making matters worse, the situation in East Asia took a turn. China launched a major military exercise near Taiwan featuring air, sea, and missile units in what many saw as a show of force against growing Western alignment with Taiwanese leadership. Taiwan responded with naval mobilisation, and investors took notice.

Taiwan’s Taiex index is now down more than 10% from recent highs. Foreign investors have been pulling out, worried not just about rising tensions but also the implications for Taiwan’s crucial chipmaking industry. Nvidia, a company closely tied to Taiwan’s semiconductor ecosystem, slid 1.3%, reflecting broader fears that chip supply chains may once again come under pressure.

Gold Catches Fire, Then Cools as Investors Rebalance

Gold ran to record territory mid-week as traders sought refuge from the chaos. Spot prices hit US$3,167.50 per ounce on April 3, only to give back some gains the next day, dropping to around US$3,023. The quick reversal was less about fading fear and more about a wave of asset liquidations across markets.

Still, gold’s longer-term fundamentals remain strong. February saw nearly US$5 billion in gold ETF inflows, according to Morningstar. Central banks have also been steadily building reserves, viewing gold as a hedge not just against inflation but also currency instability.

The Fed Isn’t Budging and That’s Adding to Market Tension

And then there’s the Fed. On the same day, Chair Jerome Powell made it clear that interest rate cuts aren’t on the near-term agenda. Despite some soft patches in the data, he said inflation is still too persistent to justify any shift in policy just yet.

The federal funds rate will remain in its current 4.25%–4.50% range for now, he said, even as financial markets continue to bet on rate cuts before year-end. Trump’s new tariffs, Powell warned, could sustain price pressures for longer than expected. He emphasised not reacting prematurely to one-time price shocks.

His remarks landed in sharp contrast to Trump’s calls for immediate rate relief, highlighting a deepening split between fiscal policy demands and the Fed’s mandate.

Investment Outlook: Gold’s Appeal

Trade wars, geopolitical unease, and central bank caution has made gold increasingly appealing as a portfolio anchor. If tariffs keep inflation elevated, and if tensions with China or Taiwan worsen, gold could very well push toward US$3,200 per ounce in the coming months. Central banks might also step up their buying if currency volatility grows.

On the other hand, a diplomatic breakthrough or signs of easing inflation could reverse the flight to safety, pulling money back into equities and easing upward pressure on gold. And while the Fed’s stance remains firm for now, deeper equity losses might change their stance.