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You Can Hear A Pin Drop

Commentaries & Views

As traders and market participants await news from Saturday’s one-on-one meeting between President Donald Trump and Chinese President Xi Jinping, the precious metals markets are so quiet that you can hear a pin drop. This face-to-face meeting between the leaders of the two superpowers is so important that US equities as well as the precious metals are trading in a narrow and defined range with little action prior to this weekend’s meeting.

As of 5:00 PM EDT gold futures basis the most active April contract is currently trading up $0.30 at $1412.30. Although the last two trading days have been extremely quiet very little net change, gold traded to its highest level this week when on Tuesday traders took gold futures to an intraday high just above $1442 per ounce. As we come to the last trading day of the month gold managed to exhibit its largest monthly gain in the last three years. In fact, gold gained approximately 8% in the month of June. The dollar index is currently trading in essence unchanged at 95.745.

According to CNBC, “Major Wall Street banks believe a cease-fire in which the U.S. still keeps some tariffs on China but postpones new ones is the most likely outcome this weekend.” It is believed that a best-case scenario for the outcome of the one-on-one talks this weekend would in essence be a truce or cease-fire, and that that outcome is extremely more favorable than in escalation in this current trade dispute.

According to analysts at Barclays “With both sides expressing a desire to resume talks, we see increasing chances of some sort of ‘ceasefire,’ in which the two sides will agree to halt further escalation of tariffs and/or non-tariff barriers while high-level negotiations take place.”

Goldman Sachs is on record stating that “Our political economists expect that the US and China will commit to resume negotiations and that the US will temporarily delay any additional tariff increases on Chinese imports. Despite a pause in tariff increases in the near term, they expect that there could still be additional tariffs later this year. Our economists’ base case remains a 10% tariff rate on the remaining $300 billion of Chinese imports, lower than the 25% rate that has been proposed by the USTR.”

The outcome of this weekend’s talks will have a major impact on the direction that gold prices take next week. An escalation of the current trade dispute would be extremely bullish for gold. If that scenario is the outcome, we could see gold spike dramatically higher as it opens on Monday morning in Australia. If real progress is made in which it is perceived to open the door to a quick resolution rather than stretching into 2020 then we could see a dramatic drop in gold prices as markets reopen on Monday.

Since the most likely outcome is a trade truce, the question will be how will gold investors and traders react to the news next week. In other words, the outcome of this weekend’s one-on-one meeting is still filled with uncertainty.

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Wishing you, as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.