WHY GOLD? WHY NOW?
Economic data released Friday from China revealed that both exports and imports came in less than expected, indicating that the trade war impact has begun. Going forward, these figures now suggest that we can expect slower global economic activity.
Precious metal prices continue to look for support, as the $1,232 level is seen as a must hold to stop the bleeding.
Some Wall Street Traders have indicated that a trade war will stop the Fed from increasing rates as early as the first quarter next year which should be seen as good news for the Gold investors.
With metal prices continuing their decline and profits shrinking, some producers indicate that they will reduce capital expenditures. This in turn should reduce output and could be seen as a bullish indicator.
Equity markets continue to digest the impact that a global Trade War could have, as strong corporate earnings continue to be the main driver for the markets.
Fed Chairman Jay Powell, in his most recent communications, has indicated that the board has been watching the strength of the economy closely, but trade war fears have had companies indicating that they will begin slowing capital expenditures. The question on everyone’s mind now is, will a trade war impact any benefit corporations have received from the Presidents tax plan?
Some analysts indicate that the shot in the arm that the economy received from tax reform will slowly dissipate as year-over-year growth comparisons expect to be set at a higher plateau. Other indicators like the flattening yield curve have economists concerned that it might lead to the next recession. Current Ten-Year Treasuries are yielding 2.84 percent while Two-Year Treasuries are just shy of 2.60, just a 24 basis point difference, the lowest since 2007.
The Fed board continues to debate whether to continue its rate hike schedule beyond 2018 as the size of its balance sheet is having a direct impact on long term rates keeping them far from the 3 percent level everyone was watching just a month ago.
The Fed must be watching the Ten-Year Bond Yields across the Globe. Today, the German Ten-Year Bond is trading at just .285 percent.
Going forward, these developments should support the price of Gold at these levels. Even if the markets trades sideways for a while, I expect the price of Gold to build a strong foundation in the near term and head higher as the trade war escalates and the yield curve continues to flatten.