The US increased tariffs from 10% to 25% on $200 billion worth of Chinese goods today. Trump has threatened to raise tariffs on more than $300 billion more. The Internet and airwaves are full of experts telling you what it means and financial fortunetellers predicting various outcomes. Truth is, nobody really knows what will happen—not even Trump and Xi.

Rather than add to that cacophony, I’ll just give you my take on what how resource investors should play this uncertainty.

First, recognize that today’s US action is an important but not irreversible step. Negotiations have not stopped, and both sides are still pursuing a deal. That makes it a mistake to think that higher tariffs are here to stay and commodities are going down for the count.

Also remember that the impact of these new tariffs will take time to work through the economy. I understand, for example, that they don’t apply to goods already on ships headed to the US. And then we’ll have to see how much of the extra cost businesses can pass on to consumers, and what the impact of that will be. A deal could be reached before there’s much real-world harm done.

But don’t take that to mean that everything is just peachy and nothing bad will happen. This escalation is serious, an obvious negative for Chinese consumption of raw materials and the cost of living for US consumers, both of which are bad for commodities. As businesses, traders, and speculators adjust, some of the potential harm will be priced in advance, and this is immediately bearish for metals and energy prices.

This all makes it telling and important to see gold doing its job as a safe haven on days like today. As I write, markets are recovering from their morning sell-off, but the point remains that fear on Wall Street is bullish for gold. Note that silver, being an industrial as well as precious metal, didn’t do as well. Par for the course.



Key takeaway: this is no time to short gold. I’m a long-term precious metals bull anyway, and like to put my savings in bullion, so this doesn’t change much for me, but the risk profile of the space has changed.

Gold now seems less likely to sell off in the months ahead—and it could well soar, if the Chinese retaliate and trade war really heats up.

This is a classic asymmetrical risk scenario; I see lower odds of a major retreat in precious metals, and higher odds of near-term gains. And that’s not even counting potential black swans in Europe, Brexit, Venezuela, Russia, and other places.

I’ll be “data dependent” on this, but that’s the way I see it now. I’m happy to have some great gold and silver speculations in my portfolio today.

On the flip side, I see much greater risk to industrial minerals and energy plays in the near term. I’m not selling anything yet, as I don’t want to put all my eggs in one basket—not even one made of gold and silver. But I’m not planning to do any more buying in this space until the trends have visibly turned upward again.

The exception, as my frequent readers know, is uraniumI see higher prices for uranium this year as being the highest-probability speculation on the table—regardless of what happens with the trade war. I’m looking to deploy more cash in this space in the nearest term.

That’s my take,

Friday, May 10, 2:17pm, EDT, 2019