Trump Tariffs and Retaliation by the Chinese Take Gold Higher

May 13, 2019 - 6:17pm

 by Gary Wagner

On Thursday and Friday of last week trade representatives from both the United States and China began and ended negotiations dismally without accomplishing any progress. If anything, the relationship regarding trade between these two superpowers worsened. Add to that fact that on midnight of last Friday Trump made good on his threat and raised tariffs on $200 billion worth of Chinese imports from 10% to 25%. This action led to an announcement by the Chinese that they would retaliate.

Today China’s finance ministry announced plans to set import tariffs from 5% to 25% on 5,140 products produced in the United States, which would revise their tariffs on imports from the United States to $60 billion. They also set a date June 1st, for the initiation of these tariffs.

As reported by Reuters, “China said on Monday it would impose higher tariffs on a range of U.S. goods including frozen vegetables and liquefied natural gas, striking back in its trade war with Washington after U.S. President Donald Trump warned it not to.”

“China’s adjustment on additional tariffs is a response to U.S. unilateralism and protectionism,” the ministry said. “China hopes the U.S. will get back to the right track of bilateral trade and economic consultations and meet with China halfway.”

The net result of these events can be seen in a dramatically lower U.S. equities markets, and substantially higher prices for gold.

As of 4:05 PM EDT the Dow Jones industrial average is currently trading off by 2.38%, which is approximately a 617.38-point drop. The Dow is currently fixed at 25,324.99. The S&P 500 is off by 2.41%, a 69.55-point drop and is currently fixed at 2811.45. However, it is the NASDAQ composite that has taken the largest percentage decline today, down 3.43% a 272-point drop with the tech heavy composite currently fixed at 7643.79

As far as the precious metals complex are concerned, with the exception of gold, silver palladium and platinum all closed lower on the day with palladium giving up 2.62%, a loss of $35.60. Gold however bucked that trend as it reacted as a safe haven asset and gained 1%, a total of $12.90 and is currently fixed at $1300.40 an ounce. The fact that gold closed just under two dollars from the intraday high of $1302.20 is significant and indicates a very strong probability that gold will trade higher this week.

Bitcoin Blossoms - by Joseph Wagner

Despite the recent hack of Binance where the security breach of the crypto exchange resulted in a loss of $40 million worth of the cryptocurrency, which is approximately 7000 coins, bitcoin has been on an uptrend and seems to have bloomed once again. In February 2019, the futures markets turned from bearish to bullish. Then at the end of March it traded above its 100-day M.A and showed a sizable spike in both volume and value. May however is when the bitcoin flower began to bloom and traded above its 200-day M.A and has accelerated its growth mimicking its rise to approximately $20,000 in 2017.

As it stands today, Bitcoin futures are trading up a 25% and as of 4:00 PM EDT is trading at $7965 up $1600. On a technical basis resistance lies at $8900 with major resistance just below $10000. Based on recent sentiment and renewed interest in this market it wouldn’t be a surprise to see Bitcoin trade up to $10000 without any difficulty within the next two weeks. It seems that spring is in the air and flowers aren’t the only thing blossoming this month.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer

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Gold Forecast: Proper Action
On Sunday, May 5th, we sent out a trade alert to enter a long trade in June gold. We entered this position at $1285 with a stop at $1268. On Monday, May 6th we sent out a trade alert to modify the stop to just below Monday's  low to $1278.
Maintain long gold at $1285. Maintain the stop at $1278, and put a limit order or (if available) an OCO (one cancels the other) to sell at $1310
An OCO order combines a stop order with a limit order on an automated trading platform. When either the stop or limit price is reached and the order executed, the other order automatically gets canceled. Experienced traders use OCO orders to mitigate risk and to enter the market.
limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. A limit order is not guaranteed to execute.
Gold Market Forecast

The trade negotiations which which ended on Friday will certainly lead to more obstacles than previous trade talks. Higher tariffs: 10% to 25%, and the chinese response, changes the dynamics and has raised the stakes to a new level: Trade War 2.0.

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