LAWRIE WILLIAMS: Gold steadies as equities, bitcoin stutter amid trade talks impasse

The gold price suffered last week on talk of perhaps a more full-on trade deal between the U.S. and China rather than the cobbled together Phase One so-called agreement designed to enable both sides to claim victory. However, in reality, the two sides seem as far apart as ever with China calling for the reversal of all Trump-imposed trade tariffs, while the Americans are seeking further concessions from the Chinese which the latter seem loath to concede. We think the talks will drag on with neither side prepared to give key ground – perhaps even until after the 2020 Presidential election, still a year away, when the Chinese will have a better idea of who they will be up against in any eventual trade settlement negotiations. Time may be on the Chinese side while Trump may be desperate for some kind of concrete breakthrough to cement his run for a second term.

Meanwhile the impeachment hearings drag on. While it looks unlikely that the President will be removed from office given the Republican majority in the Senate the plethora of accusations against the President’s conduct in office may be having an effect on his chances of winning next November. In truth President Trump has made some good decisions with regard to the U.S. economy moving forward, but these have been interspersed with off-the-cuff Twitter statements which continue to cast doubts on his Presidential fitness.

Take the ‘did-they, didn’t they’ supposed Russian interference in the last U.S. Presidential election which has been the subject of huge debate internally in the U.S. It’s presumably legitimate for the U.S. to interfere in any other country’s election process, as it undoubtedly did in Ukraine, and has even overtly tried to do in the forthcoming UK election with President Trump’s diatribe against UK opposition leader Jeremy Corbyn, but not for any other power to interfere in U.S. domestic politics! Double standards!

Amidst all this the gold price appears to have steadied and looks as though it could be set to bounce back yet again to the $1,500 level, unless, of course, there is realistic true progress in the U.S./China trade talks, or a big positive move in U.S. unemployment data or PMI readings. Gold remains driven for the time being by the U.S. data, despite what appears to be a strong demand downturn in the world’s two biggest gold consumers, China and India. But on the positive side for gold, more countries’ central banks appear to be climbing on the gold buying bandwagon and gold ETF holdings remain strong.

Meanwhile gold and silver equities have been on the rise despite what appear to have been weaker precious metals prices over the past couple of weeks. Rising gold and silver equities have, in the past, been forerunners of improved metal prices. These equities had been hugely depressed and could well be poised for a significant uptick, but this may be dependent on a parallel decline in general equities. These latter, along with bitcoin, are looking a little more vulnerable at the moment, so investor eyes will be focused, perhaps, on the performance of the major stock indices and utterances from the U.S. Federal Reserve. Any statement from the Fed suggesting a return to interest rate cuts would be hugely positive for gold. But conversely if the Fed intimates it is considering returning to raising rates again this could hit the gold price quite hard which is why U.S. data is so important.

So what do we expect will be the scenario up to the year end? We suspect the gold price will remain volatile at or around current levels. There’s a good chance it will end the year a little above $1,500 and silver at over $18, but those we see as maximums. Gold and silver could both catch a leg up at the beginning of 2020, but beyond that much will depend on what happens to equities. If they start to look vulnerable that could drive investors back into gold and silver as safe havens. But then if trade talks with China look like coming to a satisfactory solution for both sides, which we don’t anticipate, late this year, or early next, equities could get another leg up and gold and silver lose their lustre again. We still see the U.S. and China as too far apart in the trade talks and the respective egos of Presidents Trump and Xi too great for any significant compromise to be reached. But there’s a lot at stake here and with 2020 an election year in the U.S. it is possible to see President Trump giving ground – although it’s not in his nature to do so. We shall see! Uncertainty reigns.

21 Nov 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com