Gold And Silver Investors Should Be Wary Of Trade Talk Optimism And Buy The Dip

The stock market is rallying and precious metals are correcting sharply today. The prevailing trade is risk-on once again. The main driver is news that the U.S. and China said they would hold talks in Washington during early October, reigniting hopes for an eventual trade truce.

But anyone paying attention knows how this works.

With the market rally sputtering, failing on three attempts to break out to a new high, the administration had to once again hint that a resolution is near. So they announced that a meeting will take place at some point at least a month from now. Jump? How high? This sent the Dow rallying 400 points higher and Wall Street cracked open the champagne once again.

Meanwhile, the gold price plummeted by $40, settling at a $34 decline to $1,518. This represents a 2.2% drop for gold and is the largest single-day drop in nearly three years. The short-term trend channel remains intact, with gold finding support above $1,500 and bouncing nearly $15 higher.

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Silver took it on the chin even more severely. The silver price is down 85 cents or 4.4%, doubling the percentage decline of gold. Silver is trading at $18.73, giving back most of the massive rally it enjoyed yesterday.

Mining stocks are also falling sharply today, with the VanEck Vectors Gold Miners ETF (GDX) down 5%. This ETF is still up 6% in the past month and 44% year to date.

Eventually, I think Trump will give in enough to get a trade agreement finalized with China. The United States is heading into the next Presidential election cycle and Trump needs a strong economy and upward trending stock market for re-election.

But it remains doubtful that a resolution will be reached this month, next month or even this year. Every other hint that a trade deal was near ended in disappointment. Both sides seem to be dug in and willing to take some economic pain in order to defend their pride and position the outcome as a win for their country.

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Disclaimer: I am not an investment advisor. This is just my personal opinion. Invest at your own risk.

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