The trade dispute between the U.S. and China has been brewing for over a year now and shows few signs of being resolved anytime soon. U.S. President Donald Trump stated ahead of the upcoming round of negotiations between the two countries that the U.S. was not close to striking any kind of finalized trade deal with China.
Trump said he remained doubtful that the upcoming talks, which are scheduled for September, will be fruitful. The trade dispute between the two largest economies in the world has sparked fear among investors, which has resulted in increased demand for safe haven assets of all kinds. Investors trading commodities will have noticed the large run up in gold prices over the last year as the trade dispute waned onward.
Tit-for-tat
So far, the two sides of the dispute have been responding in-kind to each other’s aggression on the trade front. The recent tariffs announced by Trump are expected to hit Chinese exporters. China has said it would respond but has yet to specify what type of response is coming and when it will occur. However, U.S. Director of Trade and Manufacturing Policy, Peter Navarro, suspects China may try to devalue its currency to offset the negative effects on Chinese exports. Navarro threatened a U.S. response if China manipulates its currency, the Chinese yuan.
Investors worried about the ongoing trade dispute have good reason to be fearful since China and the U.S. play large roles in providing stability and growth for the international market system. The International Monetary Fund (IMF) recently pointed out China’s essential role in the world economy in its most recent Article IV assessment. The IMF urged the two sides to come to a quick resolution and emphasized the necessity for a comprehensive deal, which avoids undermining global markets.
It’s Not Just the Trade War
Although the trade war between China and the U.S. has taken the forefront in driving markets, it is not just the trade dispute between the Americans and Chinese that is causing investors to worry. Along with dealing with attacks from the U.S. on the trade front, China is also dealing with the current uprising in Hong Kong. Thousands of anti-China protesters have completely shut down a major cargo airport, further exacerbating worries of a global economic downturn.
Even a significant dip in Argentina markets, following the loss of President Mauricio Macri in the presidential primaries, resulted in increased risk-off sentiment. Macri was widely viewed as the market-friendly candidate in the presidential race in Argentina. He had also lost the presidential primary by a much larger margin than had been expected, shocking the markets into safe haven assets, such as gold.
Gold Up, Agriculture Down
The numerous political shocks and trade disputes are putting investors on edge and have increased worries of a possible future global economic downturn. This increased risk-off sentiment can be seen in the movements of the commodities markets. Gold prices have been rising all year and moved even higher on Monday, August 12, when COMEX gold futures reached $1,517.60/oz., representing a 0.6% increase. Speculative bullish positions on higher gold prices increased by 23.0% to 2285.082 options and futures contracts, which was the largest weekly increase since July 2016.
Despite gains in gold, the commodities markets as a whole were down close to one-year lows during the beginning of the week starting 05 August 2019. A sharp drop in agricultural futures, particularly grains, played a significant part in the downturn. By the end of the trading day on Monday, August 12, corn futures, set to expire in December, listed on the Chicago Board of Trade were crashing to $3.9275, representing a 5.98% decline.
With the ongoing US-China trade war, the big question is will the price of gold continue to rise as investors continue to turn to safe-haven assets. If you’re interested in taking part in the financial markets in a bid to make some profit, you can read this guide how to trade online in order to increase your chances.
