In the last few weeks gold hit a new 6-year top, jumping to $1.535, before slowing down to $1,500. This strong movement is confirming the huge bullish pressure, as investors are seeking safe assets in this intricate geopolitical scenario. Trade tensions, currency war, dovish central banks and fears of an economic slowdown are the main reasons behind this rally. Between those market movers, the so-called trade war between US and China is dominating the scenario – especially following the new escalation that Donald Trump launched earlier in August, with the threat of new tariff on $300 bn of Chinese good, before postponing this after Christmas as this generated a reply from Beijing.
Indeed, the Chinese Government, depreciated its currency, which jumped above 7 against the US dollar for the first time after more than a decade. This means that the trade war could be much more complicated also for the US, as China seems to be ready to play the game with good a hand. Its export data is still good, as they can further devaluate the national currency, in order to make its economy more competitive, meanwhile, revaluating its US dollar portfolio.
Can this only be dangerous gambling from Donald Trump? Can this be studied in order to add further pressure on the Fed, pushing them to another two rate cuts before the end of the year? Maybe yes, but the Tycoon should now be aware that there are probably more risks than advantages from this war. Meanwhile, the reaction of stock markets was impellent, with significant correction from the top seen in the last few months. A clear signal that one of the first victims of the trade war could be US companies as escalation of the conflict could generate a loss for both parties involved and, consequently, for the rest of the world. The only winner so far was gold, with its price that jumped to $1,500, with investors looking for a safe haven in the market storm.
Despite this, there are elements that could curb this enthusiasm. For example, any reconciliation signal between Trump and China could send investors back to riskier assets. This situation has become risky for Trump too, so we cannot exclude this scenario. Moreover, the area $1,500-1,530, was, between 2011 and 2013, an interesting support area and there are good chances that could represent a resistance level now. Of course, a lot will depend from the news related to the trade war.
Regarding gold, there is an interesting news coming from ActivTrades. The London-based Broker just cut its target spread on the bullion, bringing it down from $0.35 to $0.25, while the average spread is expected to be between $0.28 and 0.30, with a significant reduction for traders.
