Trump’s Tariff Roar Threw Risky-Assets Under The Bus; Gold Shines Again In The Global Market

Trump’s Tariff Roar Threw Risky-Assets Under The Bus; Gold Shines Again In The Global Market

Gold prices rose in the international market once again amid the United States president Donald Trump’s intentions to raise import tariffs to 25% on $200billion worth Chinese goods.

The Gold Spot jumped from the level of $1268.49 (Day’s low on 3rd May 2019) to mark to a high of $1285.22 (as on 6th May 2019 GMT -4: 6:00 AM).

Gold prices were plunging in the international market over high optimism in the global market for recovery in global economic conditions. The progressive trade talks led to the improvement in the global market, which in turn, saw a rise in risky assets.

However, in the recent tweet, the U.S. president Donald Trump mentioned that he would drastically increase the tariff on Chinese goods, which threw the risky assets under the bus and supported the prices of non-risky assets such as gold.

Dollar prices plunged substantially over the tweet and Dollar Index dropped from the level of 98.06 (Day’s high on 3rd May 2019) to the level of $97.58 (as on 6th May 2019 GMT -4: 6:00 AM). The plunge in dollar prices further supported the gold.

The gold prices started its uptrend from the level of $1160.56 (Low in September 2018) to the level of $1346.79 (High in February 2019) over the weak global economy and event crisis in the international market.

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The trade talks started in early 2019 and progress in the trade talks in terms of various delegation meetings; time to time positive indication from the delegations from both the counterparts raised optimism in the market participants which coupled with positive economic figures exerted pressure on gold prices. The prices reacted quickly over the optimism in the market and took a jab from the level of $1346.79 to the level of $1266.35 (Low in May 2019).

However, the recent intentions of the U.S. president could throw the outcome and decision of the trade talks in the grating, which as per the market participants could again exert pressure on improving global economic conditions.

Such estimation by the market participants led the transfer of their respective capital from risky assets to the risk-free asset, which in turn, marked a decline in overall equities and other capital markets and supported the gold price.

The decline in other assets coupled with fear over global economic slowdown led to a reduction in the market discount rate. The market discount rate or yield-to-maturity declined from the level of 2.565% (Day’s high on 3rd May 2019) to the present level of 2.523% on the 10-years treasury bills. However, the yield on 30-year treasury bills in the United States is still higher than the 10-years bills and is currently hovering around 2.916%, down as compared to 3rd May high of 2.947%.

The high yield on 30-years bills as compared to yield on 10-years bills signifies that no indication of recession is present in the market so far; however, the investors and other market participants should keep a close eye on both the yields to reckon the impact of Donald Trump’s action on the global economic conditions.


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