Hawaii Six O - Gary Wagner
U.S. Equities Plummet, Gold Soars Following Chinese Tariffs and Trump Tweets
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Featuring views and opinions written by market professionals, not staff journalists.
On a day when many analysts expected Federal Reserve Chairman Jerome Powell to be in the spotlight it was in an announcement by China that they would begin retaliatory tariffs against products they import from the United States, as well as tweets in response to the Chinese announcement by President Trump that sent the financial markets reeling in the United States.
According to CNN, “The US-China trade war ratcheted up yet again on Friday, with Beijing unveiling a new round of retaliatory tariffs on about $75 billion worth of US goods. China will place additional tariffs of 5% or 10% on US imports starting on September 1st, according to a statement posted by China's Finance Ministry. The Ministry also announced plans to resume tariffs on US imports of automobiles and automobile parts. The tariffs would be 25% for vehicles or 5% on parts, and would take effect on December 15th. The new tariffs will target 5,078 products, including soybeans, coffee, whiskey, seafood and crude oil.”
The response by President Trump was quick with a harsh response tweeting, "We don't need China and, frankly, would be far better off without them … Our great American companies are hereby ordered to immediately start looking for an alternative to China … I will be responding to China's Tariffs this afternoon."
On top of the trade war escalation was a speech today by Fed Chair J. Powell. Chairman Powell spoke at the Jackson Hole economic policy symposium today, and his global economic outlook was scary at best. In his words the global economic outlook “has been deteriorating” as he vowed to “act as appropriate to sustain the expansion”. The tone of his speech today indicated that the Fed would be accommodative through easier monetary policies. This alone is obviously extremely bullish for the safe haven asset gold.
The combination of these events resulted in a major price decline in U.S. equities with the Dow Jones industrial average plunging over 600 points. Today’s events also had the net effect of being highly supportive of gold prices which gained almost $30 in trading today. Basis the most active December contract, gold futures are currently fixed at $1536.40. This takes Gold to the highest closing price on record this year, and the highest closing price since April 2013.
The magnitude of today’s multiple events has once again created a perfect storm scenario in which we could see gold move sharply higher from this current price point. The announcement by China to retaliate with tariffs has taken this trade war to the next level.
It is hard to fathom that there will be a quick resolution as both sides seem to be digging in deeper. Actions from both sides seem to be widening the gap between the two superpowers.
Many analysts including myself have now revised their price forecasts with projections of $1600 per ounce.
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Wishing you as always, good trading,