This Week Gold Continued to Rally on Trade War Fear, Stocks Got Slammed
The biggest news this week for the markets and gold was trade war fears. Gold continued to rally this week as China and the U.S. imposed and threatened new tariffs on each other. By Friday the Dow had fallen nearly 3%.
The U.S. announced tariffs on $46 billion more of Chinese goods. China countered with tariffs on $50 billion worth of American goods. Late Thursday, President Trump threatened $100 billion more in tariffs.
What this means for investors: History has already taught us some important lessons about what happens in a trade war. The most notable example, which we’ve talked about before but bears remembering, is the Smoot Hawley Tariff Act of 1930. Gold finished out the week around $1,335 and silver was around $16.50. The dollar is going to continue to be a catalyst for gold prices to go up as well if it continues to weaken.
Gold Met Resistance Thursday, But Recovered by Friday
On Thursday, some of the trade war fear eased, and gold pulled back while the stock market recovered some of its recent loss. However, that was short lived, as Friday brought new tariff talk and the Dow fell over 600 points. Treasury Secretary Steve Mnuchin and Commerce Secretary Wilbur Ross tried to calm market fears, but the plunge continued until the close.
Soft economic data also was also something to watch this week. The U.S. jobs report released Thursday showed weaker than expected jobs growth. This kind of data usually boosts gold, but it was mostly overshadowed by the drama around trade war.
What this means for investors: China has another possible move in a trade war. It holds $1.1 trillion in U.S. treasuries. If China dumped its American debt holdings, it would devastate the U.S. economy. China doesn’t seem poised to do that just yet, despite rumors a few months ago that it wanted to dump treasuries.
Is Now the Time to Buy?
As gold prices start to climb, there are several reasons to remain bullish on gold. Analysts discuss why now is the time to move into safe haven bets like gold.
Stagnant Gold Production and Increased Global Demand Will Send Gold Prices Up
Gold production seems to have peaked. The World Gold Council estimated that gold mining output peaked last year, and this means prices will move up. There is a lack of exploration, and the industry is not able to replenish the reserves that it is mining. However while supply is falling, demand on a global scale is increasing. Countries like Russia, India, Turkey, and China continue to shore up their gold buying.
What this means for investors: Higher demand and lower supply always mean higher prices. If production didn’t peak last year, it will this year, according to the WGC.
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