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Gold Resists Rally’s End Despite U.S.-China Trade Deal

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Gold Resists Rally’s End Despite U.S.-China Trade Deal

By John McDonald

Markets around the world were lifted by news of planned cancellations of U.S. & Chinese tariffs, but gold is still hanging on. 

When the Chinese Ministry of Commerce announced on November 7, 2019, that the U.S. and China would likely begin cancelling the tariffs imposed on each other, markets rallied all over the world. However, despite warnings that gold could take a tumble, the yellow metal is hanging on the rally-worthy values that analysts say will keep investors buying into the New Year. 

The unusual resilience of the precious metal is likely due in large part to ongoing investor jitters about other investments, such as stocks, that are presently soaring but still feel volatile. If the tariffs are actually rolled back in the stages China is currently predicting, investor sentiment could stabilize. For now, however, safe-haven assets like gold remain extremely attractive. 

Chinese spokesperson Gao Feng said the countries have decided to roll back the tariffs to “help stabilize market expectations, benefit the economies of the two countries and the world economy, and benefit producers and consumers.” China wants all U.S. tariffs on billions of dollars’ worth of goods shipped to the United States dropped “as soon as possible.”

Feng reported that there have been “two weeks of constructive discussions” between the presidents of the two countries, and that the rollback is a result of those discussions. He specifically mentioned a potential removal of Chinese restrictions on U.S. poultry imports that have been in place since 2015. 

“Leaders of the two sides have conducted a serious and constructive discussion on properly addressing the concerns of both sides and agreed to cancel the tariffs by stages in accordance with the development of the agreement,” Feng said. 

President Trump made a similar announcement last month, when he said the two men had reached a “preliminary trade deal” involving Beijing buying more farm goods and opening its markets. He did not respond to the Chinese press conference on November 7, however. 

Last month, the White House implied it might forego December tariffs if the discussions continued to go well. The markets clearly are anticipating this type of positive progress. Stocks are up and gold prices are “under pressure” although still holding strong just under $1,500.

At present, there is not an official timeline for lifting any tariffs in place, and the countries presently are still negotiating the timeline and tariffs to be pulled back. To further complicate matters, not all of President Trump’s advisors appear to be on board with the roll-backs. 

The president, himself, is playing his cards close to the vest. His only observation after the Chinese announcement was a tweet reading, “Stock market up big today. A New Record. Enjoy!” However, he did not dispute Feng’s assertion that the U.S. had agreed to some undetermined tariff reductions. 

U.S. tariffs cost China an estimated $35 billion just in the first half of 2019, and the manufacturing sectors have been hit especially hard. 63 percent of China’s losses in this sector were diverted to other competitors like Taiwan and Mexico. It is unclear whether all of that activity will return even if the tariffs are lifted. 

Sources: Investopedia, Reuters, NY Times

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