Saturday, July 20th, 2019 MST

Trump’s tariffs; Fed rate cut likely; gold is benefiting 

Trump is committed to tariffs.  If he were levying tariffs on only China, that would be bad enough as China is one of the tech manufacturing centers of the world.  But, Trump is not going after only China.  He has implemented tariffs on products imported from nations that have long been friendly, such as Canada, Mexico, Germany, India, and Turkey.  Moreover, he imposed tariffs on steel and aluminum from most countries, and on solar panels and washing machines.

A trade war is developing as most countries have retaliated by levying tariffs on goods imported from the United States.  This will slow world economic growth as it will cause many dislocations.  Manufacturing facilities will be shuttered as the tariffs increase, and the manufacture of those items will be shifted to another country not tariffed, which will again incur the cost of building another facility.

Basically, tariffs cause inefficiencies as production is disrupted to avoid the tariffs.  Additionally, there is the ton of record keeping that is involved, which produces no wealth.

Right now, stocks are trading at near record levels (Dow Jones Industrials) because the Fed has signaled possibly two rate cuts this year.  The latest GDPNow estimate (June 28) from the Federal Reserve Bank in Atlanta shows GDP growth of only 1.5% for this quarter, which ends this month.  If GDP comes in below 2%, look for a Fed rate cut in at the July 30-31 FOMC meeting.

Some analysts are talking about another QE program that will cause negative interest rates.  According to Bloomberg, $13 trillion of debt is yields negative interest rates around the world.  If the Fed cranks up another QE, that number will grow.

And, gold is trading higher, up $130 this month, based on several factors, one being the Fed embracing a loose monetary policy.  Gold has always responded to reckless monetary policies.  Further, there is the prospect of a worldwide recession, which will most certainly guarantee loose monetary policies at all central banks.

Gold is reacting well to all these potential calamities, as it should.  Its price is up $130 this month but is still $500 off its 2011 high.  Lots of room for upside movement. Paul Tudor Jones, famed investor, publicly stated that if gold reaches $1400 it will go to $1700 quickly.

 

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