Trade Troubles Continue as Chasm Deepens Between U.S and China

May 9, 2019 - 6:38pm

 by Gary Wagner

The financial markets continue to react to the increased apprehension regarding the outcome of the trade negotiations between the United States and China. Equities globally have been under pressure for the better part of this week.

Earlier this week the Dow Jones industrial average traded 660 points lower before recovering on Tuesday. Today the Dow Jones industrial average traded to a low of 25,517 points before recovering, and closing at 25,828.36, a loss of approximately 139 points (0.54%). These losses were highly attributed to rising tensions between the two superpowers.

Currently the trade negotiations seem to be moving farther and farther away from a resolution and an end to this current economic conflict. Both the United States and China have dug in deep, with both countries drawing a hard line in the sand. President Trump’s increased pressure, and timing of raising the tariffs from 10% to 25% has resulted in an equally hard line response from China.

The Chinese government has threatened to retaliate if tariffs are raised tonight. While these two superpowers attempt to position themselves for favorable outcomes for their countries during these negotiations, the chasm has widened and seemingly made it less likely that this week’s negotiations will result in a resolution.

If anything, Trump’s actions to raise tariffs during the negotiations has been interpreted by the Chinese as a sign of weakness. According to the Wall Street Journal “The new hard line taken by China in trade talks—surprising the White House and threatening to derail negotiations—came after Beijing interpreted recent statements and actions by President Trump as a sign the U.S. was ready to make concessions, said people familiar with the thinking of the Chinese side.”

These tensions surrounding the current trade negotiations have been supportive of gold prices as the precious yellow metal is considered a safe-haven asset. Gold futures basis the most active June Comex contract gained $3.40 in trading today and are currently fixed at $1284.80. While fractional losses in the dollar index provided some tailwinds there was certainly an equal amount of bullish market sentiment.

Gold futures gained +0.27%, while the dollar index lost -0.11%. This confirms that today’s modest gains were a combination of bullish market sentiment and U.S. dollar weakness. With the clock ticking and the countdown, a mere 13 hours away from higher tariffs going into effect the current negotiations will now have to resolve that issue before they can move on to the real problems plaguing the current dialog. This makes it even less likely that we will see a favorable outcome to this week’s trade negotiation.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer

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Gold Forecast: Proper Action
On Sunday we sent out a trade alert to enter a long trade in gold. We entered this position at $1285 with a stop at $1268. On Monday we sent out a trade alert to modify the stop to just below today's low at $1278.
Maintain long gold at $1285. Maintain the stop at $1278.
Gold Market Forecast

The trade negotiations which began today will be certainly contending with more obstacles than previous trade delegations. With the countdown now less than 12 hours away and the almost certainty that Trump will in fact raise tariffs from 10% to 25% is change the dynamics and differences between the two superpowers.

The fact of the matter is that although the negotiations will continue through tomorrow, if tariffs are raised tonight it might dig both camps deeper into their respective positions and dynamically decrease the potential for a favorable outcome and resolution.

If that is the case we should see gold prices firm substantially in US equities to continue to trade under pressure.

Sentiment Indicator:
Gold -> Bullish
Silver -> Neutral
S&P 500 -> Bearish
Bitcoin -> Bullish