US and China Trade Disputes Keeps Markets Cautious

Author: Ian Davis - Bullion Manager

Published: 23 May 2019

Last Updated: 16 Oct 2019

Contents

Wednesday morning brought no dramatic market response even as reports broke of possible further restrictions on other major Chinese technology companies. Hikvision comes in for a potential blow following that of Huawei last week. A stay, albeit a temporary one, was granted by President Trump on Tuesday for US companies to continue to do business with Huawei. The companies response, from its founder Ren Zhengfei, was one of disdain, saying it “doesn’t mean much” as measures were already in place should a “blacklisting” occur.

When the announcement of the blacklisting was initially aired, a sell-off in shares of US technologies was triggered. The far-reaching effects of President Trumps actions appear to be little thought through and even affect companies beyond America's borders. The devastating effect to US companies should China retaliate could be one which is widespread throughout the US economy and beyond, such is the reach of Chinese technology in the world today.

These uncertainties led to a promising start to last week, pushing the price of gold above $1300/oz. However, the stronger dollar this week coupled with rising US equities appears to have reduced the appeal of gold to some investors. The price lowered to $1266.5/oz, which for the bears out there might just make it a good buy. Don't foget the gold:silver ratio is almost 89 as I type this so silver should be factored into investment decision making. A high ratio means one of two things either silver is "too cheap" or gold is "too expensive". We leave the analysis of the market up to you!  

With a backdrop of an escalating trade war, instability in the Middle East, stock market gyrations and bond yields near an 18 month low, investors have been left both frustrated and side lined.

Despite all this, we see no fundamental reason to sell gold, quite the contrary infact, as geo-political risks look rooted for the remainder of the year. Longer term who knows but gold has always been used to hedge inflation and will find its feet as a safe haven should markets enter further turmoil. 

Weakness in the Chinese renminbi (CNY) has been further restricting gold value as a weakened Yuan keeps the cost of imports down and thus benefits companies and the stock market. Experts at Saxo Bank Group believe a slight upturn in the currency could prove beneficial to gold as companies struggle with higher import costs.  

When there is uncertainty in the stock markets, investors often turn to gold as a relative safe haven.

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