Fears of an escalating trade war between the US on one side, and China, the EU, Canada, and Mexico on the other, are weighing on the dollar this morning. Gold prices are making a push to regain the $1,300 mark, while the DXY index of currencies is below 94.
At 9 am in New York, gold was trading at $1,298.50 an ounce. The 1 kg .9999 fine gold contract in Shanghai was trading at ¥268.05/gr ($1,301.68/oz).
Wall St is still riding Friday's good nonfarm payrolls report, which had good news for practically everyone. Stocks were up solidly across the board Friday, from the blue chips of the Dow to the small cap Russell 2000.
The Fed meets in nine days to decide on a rate hike, something the NFP has pretty much guaranteed. The CME FedWatch tool is showing a 93.8% change of a 0.25% rate hike. Treasuries were softer Friday, with the yield on the 2-year T-note up 5.6 basis points to 2.467%, and the 10-year up 6.2 bp to 2.884%.
The 2–10 yield spread, which is commonly used to gauge the yield curve, stood at a dangerously low 41.7 basis points. Should the interest rate on the 2-year Treasury raise above that of the 10-year Treasury, it would invert the yield curve, which is a common signal for an upcoming recession.
Oil prices were down this morning, despite the weaker dollar. Some bargain hunting after the opening bell has prices near back to unchanged. West Texas Intermediate contracts for July ended Friday with a 1.8% loss, settling at $65.81. This was the lowest close for the US benchmark since April 10. August Brent contracts fell 1% Friday, closing at $76.79. The WTI discount to Brent has swollen to $10.98. The historical average is in the $4 range. At this price, it starts becoming cheaper to pay for shipping WTI from the US to Europe or China than it does to buy Brent crude.
Nations across the globe continue to prepare retaliatory tariffs against the US if Trump follows through on his plan to levy blanket steel and aluminum tariffs on enemies and allies alike. The reasoning for hitting the EU, Canada, and Mexico with tariffs is that China has been using shell companies in those nations to dump steel on the US market while getting around American tariffs.
A resurgence of protectionism would hurt the economies of everyone involved. Industry leaders are hoping that this is a negotiating tactic by Trump to get other nations to clamp down on China using them as transit points to the US market. In an effort to bring Trump to the negotiating table, the EU, Canada, and Mexico are targeting US exports from the home states of congressional leaders, such as Kentucky bourbon (Mitch McConnell), Harley Davidson motorcycles and cheese from Wisconsin (Paul Ryan), Levi blue jeans from California (Nancy Pelosi), and Florida orange juice (Marco Rubio).
With widespread trade wars looming, there is no currency safe haven other than gold right now. The US dollar, the euro, the British pound, and the Japanese yen will all be hit by the economic fallout. Even the Chinese yuan will suffer. In situations like these, gold will rise as currencies are devalued and economic shocks hit.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.