I’ve heard financial talking heads attributing Wall Street’s December rally to the end of the trade war. I think it’s got a lot more to do with the Fed moving to stealth QE and negative real rates—and setting the bar quite high for even considering a change in policy. This has very important implications for investors, not all of which are obvious.
But first, I have to stress that the trade war isn’t over yet.
Remember:
- This so-called Phase One deal is largely a de-escalation, not any real resolution of the serious differences that remain between the US and China.
- A signing is said to be on tap for next week, but we’ve seen sudden changes in plans before, and a lot could go wrong between now and then.
- Even if Phase One does go into effect in January, it won’t return things to how they were, nor be an improvement on them.
- I can’t think of anyone who thinks Phase Two—which is supposed to tackle the thornier issues—will happen before the 2020 US election. Most observers seem to think it won’t happen at all.
- China is only one arena in the war. The US took on the EU as well as countries in South America. There are still open issues with Canada and Mexico.
- There’s nothing to prevent the US from opening new battlefronts if Donald Trump thinks it would be a good idea.
That said, this is a time to look forward and strategize for the year ahead…
That’s got me thinking about the impact an actual end to the trade disputes that have been disrupting the global economy.
If the art of the deal really does result in freer and more equitable trade—with lower tariffs and more open market than before—it would be a very good thing for the struggling global economy.
It might even be enough to put off paying the piper the powers that be have been desperately seeking to avoid since the crash of 2008.
If such a revitalization lasted only a few years—or even just one—before the piper returns, it would still be extremely bullish for all commodities for as long as it lasted.
Perhaps most bullish of all would be the outlook for the key industrial minerals that are facing structural supply constraints, like nickel and copper.
It would also be bullish for energy minerals—conventional and new energy paradigm alike. I do think oil’s days as fuel are numbered, but that number is pretty big. Many years big. I may finally start speculating in oil and gas plays again.
But what happens to safe-haven assets like gold and silver?
Normally, peace on Earth (at least when it comes to trade) and a booming global economy would greatly reduce safe-haven demand. That would send precious metals prices much lower—probably for years.
Today’s context, however, is anything but normal.
Despite unprecedented actions by governments around the world since 2008—including massive amounts of money-printing and previously unheard of negative nominal interest rates—we’ve seen mostly anemic growth.
And all that easy money has to go somewhere. What we’ve seen is that it’s mostly been real assets, including stocks, which at least theoretically represent ownership of real businesses. But we’ve also seen it in precious metals, which are real, physical wealth.
Stocks in general are way up since the crash of 2008, but gold, even after a multi-year bear market, is also up over 100% since the bottom.
That doesn’t mean that real, credible, economic good news won’t cause pullbacks in gold and silver prices.
The evidence we’ve seen since the Fed turned dovish in 2019 is that foreseeable monetary and fiscal policy will be positive for gold and silver prices—even in a reflationary boom.
Perhaps most interesting of all will be silver, which can benefit from the money printing as a monetary metal, and from the reflationary boom as an industrial metal.
What if I’m wrong? Then I’ll change my investment strategy. I don’t pretend to know the future.
Also remember that I started out by saying that the trade war ain’t over yet.
It’s going to take some sustained positive economic momentum for me to turn really bullish on all commodities as a class.
Happily, gold and silver do just as well, if not better, if the war heats up again—or if the global economy sputters to a halt despite cooling of the trade conflict.
With silver being the greater win-win option, I plan to redouble my efforts to look for great silver speculations in 2020.
That’s my take,
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