Gold prices popped overnight as fears of a trade war grew. President Trump, in a moment that will likely come back to haunt him, tweeted “Trade wars are good, and easy to win.” In response traders sold US dollars and bought some gold. You can clearly see the moment on the 5-day chart of GLD (bars) compared to the dollar index UUP (in blue). Granted, it’s not a huge move, but with today’s instantaneous media coverage you can often see exact moments that things happen.
Yesterday afternoon the dollar dropped – and gold prices jumped – at the Trump administration’s announcement of steel and aluminum tariffs. So last night’s tweet was doubtless seen as indicating an increased possibility of more tariffs.
In prior weeks, tension built when Trump imposed tariffs on solar panels, which are produced in Asia at a much lower price than they can be here in the US. Here’s a good article discussing how the tariff is applied, and what the likely results are.
As with any argument, there are two sides. The argument for protectionism is that other countries produce goods at lower prices than somewhere else, then “dump” them on the higher-priced country. This pulls money out of the dumpee and into the dumper. And, the place where the goods are sold doesn’t get to benefit from worker wages for the production of the goods.
There is an interesting dynamic at play here. In the US, many local communities say “think global, buy local.” Such movements are often led by left-leaning groups. Now, those same groups are opposed to Trump’s presidency, and they’ll doubtless decry these tariffs as restrictions on free trade. But they say a main purpose of their platform is to increase local jobs. The right will doubtless respond: How can you create more local jobs when you are buying things made 10,000 miles away?
The Gold Enthusiast doesn’t have the answer to this. Something that seems “fair” in one place can have downright brutal effects somewhere else. Oftentimes there is no single best answer to a global issue. It’s very interesting watching as the political dynamics twist and turn. Because eventually, they have a way of percolating down into markets. And when dynamics are twisted, we get twisty, unpredictable markets.
Based on what we’re seeing now, get prepared for some volatility in gold prices ahead.
Signed, The Gold Enthusiast
DISCLAIMER: The author has no positions in any mentioned security. The author is long NUGT and JNUG, and may add to or sell these positions in the next 48 hours.