Believe it or not, we are only 14 months into Donald Trump’s Presidency and let’s face it, during this amount of time how many of his tweets have made headlines around the world?
Since last month or so after the announcement of tariff on steel and Aluminium, the stock market is having wild swings. Trade wars are bad for stocks. As things become pricier cutting down on sell and thus company profit. So merely at a hint of a trade war, stocks market swings wildly.
But, what about the safe haven of gold. We have heard since our childhood that gold is the only safe investment which is assured to gain in value over time. How true is this theory? We saw gold prices moving high on fears of trade war already.
Is Trade War Good for Gold?
Gold Trading Safe Haven
Its observed that during a trade war gold trading tends to be a good option for your investment growth objective.
One of the key risks of a trade war is the impact it can have on global currencies and stocks.
We are seeing that already with the recent market jitters with China threatening to hit back with tariffs of its own against the US, with European stocks dropping to a one year low.
And as we are witnessing a current sell-off of riskier assets it is the safe havens that are shining brightly with USD/JPY currently trading around 105.15 and gold rising to $1346 oz.
As the chances of a full-blown trade war intensify and battle lines are drawn between US and China in particular, the US dollar faces the danger of depreciating further which will potentially strengthen gold even more.
This tit for tat affair between the two biggest global economies point to more allure for the yellow metal and as we get more developments on this gold may finally be back in its element.
It seems that not a single day goes by without a typical Trump twit causing some sort of strain on international relations.
From “fire and fury” nearly causing a military conflict with North Korea to even upsetting one of US closest allies with his retweet of a far-right group in the UK.
Now he seems he is ready to take on the whole world be imposing tariffs on steel and aluminum and then declaring that “Trade wars can be good and easy to win”.
With Europe responding to the new tariffs on steel who is the US’s biggest exporter of steel threatening to retaliate by imposing its own tariffs on US peanut better, it does generally look battle lines for a full-blown trade war are being drawn.
So the question is can trade wars be good, as POTUS says?
The fact of the matter is we don’t live in the world of Empires anymore despite what certain people may think, whereas back then the British Empire could trade around the world to its numerous outposts and the French and Spanish Empires could do the same.
This, of course, caused conflict as all three tried to expand their empires and expand their fortunes in trade.
Today we live in a global economy which tries to work together for mutual benefit and when one doesn’t play nice it has implications for everyone and not in a good way.
What you get instead is a reduction in business activity worldwide which could potentially lead to global recession.
Trade wars cause an increase in production costs which then leads to higher prices for goods, which leads to fewer sales which then causes business slowdown and job losses.
No one wins.
So even if gold prices go higher a trade war is not good for anyone, include the gold investors as their other assets lose value.