Saturday, Donald Trump announced a new ceasefire in the trade war between the US and China. He said the tariffs on $300 billion more of Chinese goods will not go into effect next week. The US also eased up on Huawei, which signals real willingness to negotiate with China. And as soon as gold started trading Sunday night, gold corrected sharply.
Now, calling off the escalation of the trade war is indeed good news for the US, Chinese, and global economies. It’s not a deal of any kind yet, and the ceasefire may end in a flash if talks falter again, but putting off the new tariffs is a material economic plus in and of itself.
What’s interesting is that Mr. Market is taking good the good news as good news.
Stocks on Wall Street are soaring this morning—and gold is already starting to recover—but the violent reaction is still striking.
It’s almost as though investors have forgotten the Fed. Market odds are near 100% that the Fed will cut rates later this month—what if the good news results in the Fed disappointing?
I’m not saying that markets should ignore good news. I’m saying that this is a departure from the “good news is bad news” trading we’ve seen ever since the big market scare last fall. As a speculator watching the trends, this matters.
I have to ask if any of the trends I’m betting on have changed…
My answer is no.
In part, this is because the US could reverse itself in a heartbeat and slap the new tariffs on China after all. The stay of execution is good, but it may not last. The hope that the trade war will end soon is too optimistic. A bit of a reprieve is not a game-changer. An actual deal with China will take time, and the trade war could easily take a turn for the worse—potentially much worse.
Meanwhile, the fragility of the US recovery and the deteriorating global economy are still with us.
This all makes the Fed—by far—the more important factor.
The next FOMC meeting isn’t until the end of the month. Investors may not have forgotten the Fed, but the expected rate cut was less imminent than the expected tariff increase. This seems to have Mr. Market focused more on the trade war for now, but what the Fed does is ultimately more impactful. As the Fed decision gets closer, I expect the “good news is bad news and bad news is good news” trading pattern to resume and strengthen.
The bottom line here is that nothing fundamental has changed in the world or in global markets.
I therefore remain extremely bullish on precious metals and neither surprised nor alarmed by this correction.
I warned that some form of correction after gold’s rapid rise was likely. Nothing goes up in a straight line. I was right.
This makes gold’s dip below $1,400 a buying opportunity.
Back in January, I published a report making my case for 2019 being the year gold would break out of the range that has limited it since 2013.
I was right.
Flash forward to today, and some investors may think it’s too late—the chance to buy low is behind us. I don’t think so. I do think, however, that the current correction is great news for those who didn’t buy in earlier. So I’ve updated my report for mid-2019.
I encourage all who didn’t see the original to download their free copy of “2019 Gold Breakout: How to Profit” today.
I think the best is yet to come—and no one will want to miss it.
You’re welcome to go it alone, of course. You have my take, and I hope it profits you greatly.
Monday, July 1, 12:51pm, EDT, 2019