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3 Things Gold Investors Should Know About the U.S.-China Trade Deal

Posted by Metals Corporate on

3 Things Gold Investors Should Know About the U.S.-China Trade Deal

By John McDonald

Conventional wisdom states that what is good for the financial markets can depress gold values, but the announcement last week of a tentative U.S.-China trade deal does not yet have investors piling capital into stocks at the expense of their gold investments. At present, gold prices are actually hovering around $1,475 per ounce.  

While this stronger-than-expected performance from the yellow metal does not mean that the trade deal is a bust, it does mean gold investors should watch developments carefully as 2019 winds to a close. Here are three things gold investors should know about this deal when buying or selling off gold this holiday season:

1. Details on the Deal are still a little cloudy. 

As has been the norm throughout this standoff, the United States and China are saying very different things about the terms of this deal. Chinese state media said Friday that China would “expand” its market to “increasing imports of goods and services from abroad…including the United States”. 

On the other hand, D.C. touted Chinese promises of larger purchases of farm goods, specifically, as well as other American products. However, many analysts warn that China would have to purchase far more American goods than is realistic to narrow trade deficits. 

“It is obvious that political expediency took precedence over an agreement to close the U.S. trade gap with China as a matter of American national security,” wrote CNBC analyst Dr. Michael Ivanovitch. He predicted, “trade spats will grind on, and so will political and security disputes as the U.S. China strategic competition continues unabated.”

What does this mean for gold investors?

Gold is unlikely to experience the price depression that one might expect to accompany the easing of trade tensions in the U.S. because those trade tensions are not yet visibly eased. Until details emerge indicating this trade agreement is satisfactory and set in stone, it is unlikely investors the world over will stop buying gold to hedge their bets against the global uncertainty U.S.-China trade tensions created. 

2. The Dow and Nasdaq are up, but not much. 

In the wake of announcements about the trade deal, many analysts expected the Dow and Nasdaq to soar. After all, the financial markets response with confidence when trade tensions ease! 

However, in this case, the deal does not seem to be bolstering investor confidence on the scale many people expected. The Dow closed up 3 points on Friday, December 13, 2019, the day after the deal made headlines, and did not hit a new all-time high. The Nasdaq peaked but was only up 0.2 percent. 

What does this mean for gold investors?

The financial markets may be “feeling” fine, but they are by no means sold on this new trade deal. As long as confidence remains somewhat tenuous, gold likely still will have room in its rally or, at a minimum, hold firm. 

3. Gold futures are still just under $1,500. 

Gold futures remained near year-long highs, just under $1,480 in the near-term. With Beijing and the United States both canceling scheduled tariffs in the nick of time for holiday buying, risk sentiment was upbeat going into mid-December but not overwhelmingly reduced. 

“There [are] still some question marks on whether the scaling back of existing tariffs will actually take place, but regardless, this is a step forward,” observed commodity strategist Ryan McKay. He expects near-term gold values to continue to hover between $1,460 and $1,480 per ounce. 

Investors also may be unwilling to abandon their safe-haven investments in gold just yet thanks to the U.S. House of Representatives committee approval of charges against President Trump. The committee’s decision to move forward with charges of abuse of power and obstruction makes it extremely likely the president will be impeached and, as a result, the political turmoil will extend into 2020. 

What does this mean for gold investors?

Uncertainty and turmoil mean steady values for yellow-metal portfolios. As long as the future looks uncertain for the sitting U.S. president, gold is likely to continue to rally. This is particularly true in President Trump’s case since his tenure has been notably tied to strong market performance. 

Sources: Kiplinger, Economic Times, CNBC, Reuters


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