Market Update | Trump's Trade War
The beginning of June signaled a turning point for gold, which is breaking free from other precious metals and climbing to high valuations. Let’s explore what’s prodding gold’s rising success and what the near future could hold for gold and other precious metals.
Trump’s Trade Wars
While gold had settled comfortably in the $1,800-range in months prior, trade wars between the United States and China have sent gold skyrocketing to over $1,900 AUD at the beginning of June.
Amid increased tariffs on goods imported from China, the outlook for the US economy has weakened. The impact of the trade war has not hit the US as hard as China’s economy, but analysts at Bank of America Merrill Lynch have scaled back their US growth forecast for the year, with GDP forecasted at 2.4 percent, down from 2.5 percent this year. But next year, growth forecasts lowered to 1.5 percent—down from an expected 1.8 percent.
Trade tensions are expected to get worse before they get better. And a fragile US economy combined with escalating tensions may very well remove any and all obstacles gold will need to break out.
BoAML analysts predict a steady upshot. "Gold prices look likely to do well if the trade war escalates further. This is because weaker global growth should lead to another round of monetary policy stimulus. Also, the ongoing trade war could turn into a currency war, further boosting investor appetite for gold."
But the outlook isn’t as pretty for industrial metals like silver, which means the already-gaping gold to silver ratio could widen even further. Even with gold’s recent climb, silver’s valuation has slightly dropped since our last market update.
"China accounts for a disproportionate share of global industrial metals demand," BoAML analysts said. "Whether we are looking at copper, aluminum, nickel, lead, or zinc, China's demand sits between 45% and 55% of the world's total. A continued economic slowdown in China would be very detrimental to the base metals sector through reduced demand but also through a potential depreciation in the CNY."
Could Gold Be Teetering on the Brink of a Breakout?
Some opinions via Kitco News are leaning hard toward a gold breakout. Valuations have shot up and down in 2019, and the more high-reaching swings make for a higher likelihood of a big gold breakout.
Besides the fluctuations, interest rates indicators—which have a significant influence on gold—are falling in anticipation of an easing Fed. This, combined with a steadily climbing, but very weak dollar, could easily put gold in a breakout position—likely toward the 2,200 AUD range—according to Kitco contributors.
What’s more, is a gold breakout could be exactly what silver needs to climb the ranks. If this does occur, silver could be in for a powerful rebound.
Curious about gold, silver, or other precious metals as investments? Reach out to us at Jaggards—we’re Australia’s leading bullion dealer.