Gold surged to a six-year high yesterday, while the stock market struggled all day to nearly recovering from an initial and practically instantaneous six hundred point plunge. The stock market was responding to the increased pressure being exerted by the Trump Administration’s labeling of China as a “currency manipulator” for attempting to mitigate American tariffs, by devaluing the Chinese currency. Meanwhile, the Fed is attempting to isolate the U.S. economy from any type of economic fallout by reducing interest rates for the first time, since December of 2008.
An escalating trade war is the last thing either country needs or can benefit from. Financial market volatility in Asia is sure to continue and increase, while the vacillating U. S. stock market seems incapable of finding any solid footing necessary to support any form of continued expansion. The Presidents of both countries are not only dealing with critical global consternation and recession but also domestic protests and violence. At a time when reason and cooperation have become invaluable factors, the two countries seem instead to be dead set on increasing tensions and promoting actions that have little to no chance of improving the financial situation for either country.
The two countries seem to be more concerned with the appearance of weakness, rather than providing a concerted effort to correct the trade practices and conditions purported to be at the center of the controversy. Unfortunately for President Trump, President Jinping has the luxury of time on his side, by virtue of the fact that term limits were removed for the Chinese President, earlier in the decade. Meanwhile, America is dealing with precipitating dollar value, growing signs of recession, and U.S. Treasury yields which have dropped to a nearly three-year low. In addition, President Trump is about to embark on a time-consuming re-election bid. At a time when keeping an eye on the ball is greatest, President Trump is going to have more than a few distractions to deal with, which gives a serious advantage to President Jinping, who can simply afford to wait and see.
The common list of investment hedging tools has grown slimmer in today’s economy and in spite of long and ongoing efforts to downplay the role of physical gold and other precious metals, investors can’t help but take note of the still ongoing gold buying frenzy being conducted by global central banks. If the trade war is allowed to continue, casualties will begin to add up quickly and inevitably. In spite of recent spikes in gold and silver prices, the propensity for both metals to go parabolic increases with every minute of the ongoing conflict. Growing uncertainty will continue to pressure precious metals to the upside and the stock market to the downside. During these turbulent times, analysts are suggesting that proactive investors will fare better than those willing to “wait and see.”
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.