June 5, 2018
US investors are feeling restless as the escalating trade spat with China threatens to spill over. Analysts are predicting the tariffs President Trump imposed on Chinese metal imports will push product prices up for US consumers whilst simultaneously eroding the dollar.
Subsequently, the price of gold is estimated to bloat to over $1400 an ounce from $1300 and could break the $2000 barrier in the next 18 months. Find out why here.
The world’s two largest economies began trading blows in April this year when the Trump administration imposed $30bn worth of tax duties in Chinese imports. Beijing responded with tariffs on $3bn worth of American products including food and consumer goods.
Trump is now contemplating $100bn worth of additional tariffs on Chinese goods which would account for a further 20% of imports coming into the US. A full-blown trade war will seriously damage the dollar.
The biggest impact of a trade war will be felt by US businesses which will be deflected onto US consumers. In 2017, 41.83% of imports into the US came from China – worth an estimated $147bn. US businesses rely on a lot of products from China.
A hike on import taxes would mean the FED has no option other than to raise interest rates. However, a rise in wages will not be sufficient to keep up with racing product prices.
Pressure on US debt
Trump’s “America First” policy is designed to encourage more businesses to produce more goods on home soil. However, the impact of manufacturing growth in the US would be limited and will undercut the dollar overseas.
Trump’s protectionist strategy could rebound on steal consumers such as motor vehicles, machinery and construction. Domestic steel prices in the US have already seen an upward trend since the turn of the year. The latest top- tier Ford pickups already exceed $60,000.
Analysts are fearful that political instability could mean inflation spirals out of control. Any escalation of a trade war with China would also irk America’s allies. Canada and Europe have already declared they will protect their own investments and impose tax duties on US imports.
A fallout with their closest partners also puts America’s fiscal deficits under more pressure. Although the US remains the world’s most thriving economy, the Treasury relies on lenders from overseas to fund the countries bulging debt.
Around 60% of US tax deficit comes from China and Europe – the countries Trump is currently prodding with a trade fork. With fiscal deficits exceeding more than 8% of the gross domestic products over the next two years, US businesses can ill-afford tax hikes on cross-border trading.
Gold prices predicted to surge
Low interest rates imposed by the FED has forced investors into riskier credit loans. As the marketers compete on ultra-low rates, borrowers have profited whilst savers have suffered.
Instead of cutting spending, the Treasury cut taxes and financed revenue shortfalls by adding more debt. As a consequence, the dollar has suffered its worst annual performance in 14 years.
In general, when global confidence in the US dollar wanes, investors turn to gold. A lower dollar may help boost the economy on home soil, but eventually it fires inflation.
If geo-political tensions heat up in the event of a trade war, a bullish gold market with reverse a three year trend of calm. Gold bullion is a commodity you have to own right now. You can’t afford not to!
With current gold prices hovering around the $1300 mark, the yellow metal is not going to be any more affordable in the future. As a matter of fact, gold always rises in price. If Trump imposes more sanctions on China gold prices will almost certainly go up. A meeting between the two heads of state on 12 June is one to watch.
Some experts expect to see gold prices rise sharply and hit the $1400 in a short space of time. A widespread fear of a debasement of the US dollar could push gold prices as high a $2200 over the next 18 months.