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Tariff reductions shifts focus away from real unresolved issues

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Both gold and silver sold off sharply today in response to positive remarks regarding the trade war. Although very little detailed information concerning the initial agreement from the negotiations held last month in Washington are known, today China announced that it had agreed with the United States on removing some of the existing trade tariffs.

That being said, the specifics of the timetable in which the tariff reductions will begin are still ambiguous and unknown at best. Nonetheless this news is perceived as extremely positive with a resolution to the long-standing trade war moving closer to an end rather than farther away.

According to Reuters, “China and the United States have agreed to roll back tariffs on each others’ goods as part of the first phase of a trade deal, officials from both sides said on Thursday, offering a new sign of progress despite ongoing divisions about the months-long dispute.”

As of 4:40 PM EST Gold futures are currently trading down by $24.50, which is a net decline of 1.64%, and currently fixed at $1468.50. Of the precious metals silver sustained the greatest drawdown today. Currently silver futures have lost almost 3% on the day (-2.94%), which is a decline of almost $0.52, with the December contract fixed at $17.08 per ounce.

Just as the precious metals sustained heavy losses the opposite is true for U.S. equities. The Dow Jones industrial average has closed at its highest level on record today. The Dow is currently at 27,674.80, after factoring in today’s gains of 182.24 points (+0.66%).

Although the percentage gains in the Standard & Poor’s 500 and the NASDAQ composite were substantially less than the Dow both indices showed very respectable gains with the S&P 500 also closing at a new all-time record high.

Regardless of how much truth and reality is contained in the recent statements by the Chinese and United States officials, the fact that there is forward momentum and progress being made is good. It is obvious that the negotiations have yielded some tangible results. What is still unclear is the content and context that has been agreed upon in the “Phase One” agreement.

As reported in Reuters, “Since Trump took office in 2017, his administration has been pressing China to curb massive subsidies to state-owned firms and end the forced transfer of American technology to Chinese firms as a price of doing business in China.”

How much progress has been made in tackling the most critical and key issues which are at the core of this trade war between the United States and China is still an unknown. Of those core differences possibly the most serious matter which needs to be resolved is China’s forced transfer of American technology to Chinese firms as a prerequisite for American companies to be allowed to operate in China. Also, there is the matter of massive subsidies which have enabled Chinese companies to unfairly compete.

Which leads me to the most important question which is, have these negotiations resolved these two major issues of the forced transfer of technology and unfair subsidies to Chinese owned companies?

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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.