The Trade Deal Great News For Gold

The biggest driver of major markets right now is the possibility of a US-China trade deal.

The US government’s wild launch of tariff taxes caused global markets to swoon in the first half of 2018. Gold and the Chinese stock market were hurt more than a lot of other markets.

Gold has done well with QE, QT, falling rates, and rising rates, but tariff taxes hurt the Chinese economy. That put a damper on the growth of Chinese gold demand.

The Chinese stock market is now rallying in anticipation of a trade deal, but even if there is no deal (unlikely), the Chinese government has embarked on a significant stimulus program.

US money managers are getting more interested in the Chinese stock market because of that stimulus. A trade deal that includes more intellectual property protection would create a huge US stock market rally. More importantly, it would create a huge rally in the Chinese market and that would increase gold demand significantly.

If the Fed hikes or signals that QT is going back to autopilot mode, institutional money managers will buy gold because of growing concerns about the US government’s ability to finance itself, and because the Fed’s move would hurt low-interest rate loans for US stock market buybacks. A situation like September 2018 would occur, with gold rallying and stock markets tanking.

On the other hand, a pause in hikes and an earlier-than-expected end to QT is also viewed as good news for gold.

Additionally, even without a trade deal, China’s economy is becoming consumer-oriented, and that means more imports and less exports. In turn, that means less need for the purchase of US government debt. 

A trade deal would speed up this process.

The US government’s ability to finance itself without foreign government purchases of its bonds is becoming a significant concern for powerful money managers like Larry Fink of Blackrock. 

The bottom line: A trade deal is good for stock markets and gold, but it likely flips the US government’s financial situation out of the fry pan… and into the fire!

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