Hawaii Six O - Gary Wagner
Is There a Straw That Broke the Camel’s Back?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold is trading under major pressure today, with August futures currently down $25.90, and is fixed at $1282.30. This sharp decline coincides with a major selloff of many commodities. Sharp declines in oil, grains, and other commodities defined trading activity in the futures markets today.
The sharply lower precious metals pricing is in contrast to recent activity in which both gold and silver were moving in tandem with an extremely strong US dollar.
The major event which occurred today was that President Donald Trump announced tariffs on $50 billion worth of Chinese imports. Chinese imports that contain “industrial significant technologies” will be charged a 25% tariff.
Although it has been widely regarded that the initiation of tariffs would raise the level of concern in terms of the geopolitical climate, which in turn would be bullish for the safe haven asset gold, this is not what traders witnessed as the outcome today.
If today’s $25 drop in gold prices was not in reaction to the announcement by President Trump, then what was the cause to today’s selloff in gold?
One plausible explanation to today’s gold selloff is that it was a result of a combination of factors. We have just ended a week that began with four major events beginning with the G7 meeting last week which resulted in discord between the United States and other member nations.
This was followed by the summit between the United States and North Korea, the conclusion of this month’s FOMC meeting, and an announcement by the European central bank that they will soon end their quantitative easing monetary policy.
The announcement by the European central bank caused a surge in US dollar value specifically against the euro, the other of events of this week resulted in a tepid reaction in terms of gold pricing.
The fact of the matter is that this week has been ripe with exceedingly important events that will affect the fabric of the global economy for years to come. However, it was the announcement by the European central bank that could have been the final straw that broke the camel’s back.
Now for the first time since 2008 both the United States and the Euro zone are in the process of moving to a monetary policy of quantitative normalization. This major policy shift could in fact be the strongest factor, or the straw that caused the selloff in gold today.
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Wishing you as always, good trading,