The Impact of U.S-China Trade War on Gold Markets
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The escalating U.S-China Trade War has been holding capital markets across the globe hostage, which subsequently, has led the world right into an industrial recession.
The reliance of equity markets on central banks to enhance improve liquidity has drastically increased as underlying demand is no longer able to keep economic activity lively by itself.
Consequently, monetary authorities all across the globe have set off on an easing cycle to counteract the growth-impeding impacts of the trade war.
While investors frequently celebrate the prospect of looser credit conditions, the underlying message in the central banks’ decision to slash rates doesn’t appear to have fully settled in.
The pressing question is: For how long can central banks rely on stimulus measures to keep sentiment afloat before investors realize how dark the reality of the current circumstances is?
How the Hong Kong Protests are Impacting the Asian Capital Markets
The turmoil in Hong Kong created by the ongoing protests and the U.S-China trade war has caused the financial hub to slide into a recession for the first time in over ten years.
Clashes between protesters and police, as well as the political instability have severely impacted the business’s bottom line and the tourism sector.
This turmoil may drive yet another wedge between China and the U.S as they try to ratify a highly-anticipated trade deal.
In midst of all of this, U.S President, Donald Trump, signed the Hong Kong Human Right and Democracy Act into Law. As an answer, Beijing has promised it’ll retaliate with countermeasures that are as of yet unspecified.
The upshot is that an increasing number of foreign investors are now withdrawing capital from Hong Kong. Many experts are speculating that China will soon impose capital controls in China.
Gold May Be the Answer Investors are Seeking
The trade war has also had severe implications on the global commodities market. Cycle-sensitive commodities, such as crude oil, have been left battered and bruised.
Its performance remains feeble despite OPEC’s announcements of deeper production cuts. If the standoff between China and the United States continues, the demand for commodities will continue to falter.
However, gold is one commodity that may actually benefit from the trade war. Gold has risen in large part as a result of central banks’ easing measures all across the globe to combat the disinflationary effects of the U.S-China conflict.
Gold has always been an excellent anti-fiat hedge. However, its attraction is amplified even more in an environment of low interest rates in which the cost of holding non interest-bearing assets is relatively lower.
So, if tensions continue to rise, central banks’ urgency to slash rates may rise in tandem with gold demand.
In fact, central banks across the globe have been steadily increasing their gold purchases, which indicates that gold prices are set to explode in the near future.
If you’re looking to maintain high returns in today’s low interest environment, gold investments are certainly a viable option.
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