Gold, U.S. Consumers Losing The Global Trade War - FXTM
 |
| Photo by mujijoa79/Shutterstock.com |
(Kitco News)- The trade war between the U.S. and China continues to heat up withescalating rhetoric coming from both governments; however, the gold market isseeing little safe-haven demand despite the high level of geopoliticaluncertainty.
Over the weekend, President Donald Trump tweeted that the U.S. iswinning the global trade war. Meanwhile, China has said that it is ready for aprotracted dispute. On Friday it said that it is prepared to impose $60 billion intariffs on U.S. goods if the U.S. government imposes new restrictions.
Tariffs are working big time. Every country on earth wants to take wealth out of the U.S., always to our detriment. I say, as they come,Tax them. If they don't want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.....
— Donald J. Trump (@realDonaldTrump) August 5, 2018..Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better Trade Deals for our country!
— Donald J. Trump (@realDonaldTrump) August 5, 2018While it’s not clear who exactly is winning the trade war, the clearloser in financial markets has been gold. December gold futures last traded at$1,218.80 an ounce, down 0.36% on the day.
“It is becoming clear that gold remains heavily influenced by thedollar’s performance and U.S. rate hike speculation,” said Lukman Otunuga,research analyst at FXTM. “With expectations heightened over the Fed raisingrates two more times this year, zero-yielding gold may witness further lossesdown the road despite risk aversion encouraging investors to offload equities.”
Lukman added that he sees the potential for lower prices in thenear-term as the U.S. dollar Index has pushed above critical resistance at 95points.
“This is certainly bad news for Gold, which may weaken further, not onlyfrom reduced appetite but also pressure enforced by a stronger U.S. dollar,” hesaid.
While President Trump touts his trade war achievements, FXTM say thatAmerican consumers will be the losers in this economic battle.
In a report, Monday, Hussein Sayed, chief market strategist at thetrading firm, said that the money generated from increased tariffs is doingvery little to reduce the government’s debt. He noted that could raise about$21.25 billion.
“This number represents 1.33 % of the $1.6 trillion in additional debtPresident Trump has accumulated since taking office in 2017 and only 0.1% ofthe current $21 trillion in total debt. So, it doesn’t seem the imposed tariffswould reduce the American debt substantially,” he said.
Sayed added U.S. consumer could end up bearing the brunt of the globaltrade war as higher tariffs will lead to higher inflation and lower economicgrowth.
He noted that worries can already be seen in equity markets as theS&P 500 has been trading relatively sideways despite what has been one ofthe best earnings season in history.
“Several U.S. companies have cut their profit forecast as a result ofthese tariffs, especially car makers; shares of GM, Ford, and Fiat Chryslerfell sharply after announcing their results. Other U.S. companies affected byTrump’s global trade war include Tyson Foods, Harley Davidson, UnitedTechnologies, Caterpillar and Coca-Cola, among several others,” he said.
FXTM is not the only firm that sees more downside risk for gold. Lastweek British research firm Capital Economics lowered its forecast for gold,expecting prices to end the year around $1.200 an ounce.
Simona Gambarini, commodities economist at Capital Economics, said in arecent interview with Kitco News that a stronger U.S. dollar will continue toweigh on gold prices.
“TheU.S. dollar is unlikely to fall because of trade tensions and interest ratehikes,” she said. “Investors are turning to U.S. assets for safety because ofgrowing trade tensions.”
By Neils ChristensenFor Kitco News
Follow neils_C
nchristensen@kitco.comwww.kitco.com 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.