Its Back! Tension between China and the United States of America returns

Although the trade war between the United States and China has been put on the back burner as both countries tackle the coronavirus pandemic, recently relations between these two superpowers have certainly gone south. This time the focus is upon China’s human rights policies as it pertains to Hong Kong. There is also genuine concern by many countries of the free world that Chinese Muslims have been treated as second-class citizens.

In regards to Hong Kong, protests have begun to reemerge, as the pandemic unwinds and individuals return to the streets. The Chinese legislature endorsed a national security law for Hong Kong today. This law is meant to alter the territories constitution and require the government of Hong Kong to enforce new measures that will be created by the leaders of China.

Reaction by the United States towards Hong Kong was immediate and decisive. Today Secretary of State, Mike Pompeo declared that Hong Kong no longer be autonomous from China. Currently legislation which was passed last year and certified annually by the Secretary of State requires that mainland China to recognize the autonomy of Hong Kong. The law also states that China must justify its treatment towards citizens of Hong Kong.

Concern as to whether or not the current administration will move to fully revoke the special economic and legal privileges that are currently granted to Hong Kong. This action could have severe and dramatic implications that could devastate the economy in Hong Kong.

No longer would that territory be exempt from U.S. tariffs. Action by the president could roll back the policy of the United States Hong Kong policy act of 1992. Currently there is a free exchange of Hong Kong dollars for U.S. dollars which could be restricted if this policy is revoked. The financial repercussions of such a move could collapse the banking system of Hong Kong, which would trigger a massive move of capital out of the region.

These renewed concerns regarding China have been highly supportive of the safe-haven asset class such as gold. Today gold had moderate gains with spot pricing once again being more sensitive than gold futures. As of 4 PM EST gold futures basis the June contract is currently up by $6.30 (+0.37%), and fixed at $1717.00. Spot gold is currently fixed at $1717.90 after factoring in today’s gain of $8.90 (+0.52%).

Silver pricing also gained value today, with the most active July 2020 contract currently up approximately $0.14 (+0.78%), and fixed at $17.895. Both platinum and palladium sold off in trading today with the greatest percentage drawdown occurring in the palladium market. Palladium futures are currently fixed at $1904 after factoring in today’s $72.60 (- 3.67%) decline.

In addition to the Secretary of State’s declaration today, President Trump will hold a press conference on U.S./China relations tomorrow. He is expected to sign into law a bill that was passed today regarding how the Chinese government treats its Muslim citizens. These actions resulted in U.S. equities which were trading higher in the morning session to close lower on the day.

Tomorrow’s press conference by President Trump could most certainly be highly supportive of gold as it puts pressure on U.S. equity pricing.

Wishing you as always good trading and good health,