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Dr.Who

4,679 Posts.

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14/08/19

10:28

Post #: 39986241
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Originally posted by Crom Valen: ↑

We should forget talk of bombers and such, manipulation etc.

There is a simple formula to map out what is happening now, and what will happen in future.
The whole situation at present hinges on the US / China 'Trade War'.
The simple formula is this:
1/ Trade tensions ease: this encompasses US administration talk of a resolution, easing of tariffs etc -
Stock markets gain / Gold goes down.
2/ Trade tensions ramp up: this encompasses US administration talk of a deal being a long way off, further tariffs being imposed etc -
Stock markets sink / Gold goes up.

So how will the 'Trade War' play out from here?

It really is all in Trumps hands.

So what is Trumps strategy?

It is two-fold:
1/ To build the 'Trade War' up as much as possible, painting it as a titanic 'good vs bad' struggle, painting himself as the champion of US industry / workers / farmers. He wants to build the war up, knowing that China wants a resolution. He could make a deal at any time, but will make it at the time of his choosing. His plan will be to build the story of this 'trade war' as much as possible, then to get a 'win' late. He wants a 'win' as close to the next election as possible so he a trophy that is fresh in voters minds. He wants a big 'victory' to boost his re-election chances.

2/ To use the 'Trade War' to push The Fed towards additional rate cuts. He wants rate cuts to 'juice' the US economy & bolster GDP growth in order to bolster his re-election chances. The more protracted the 'Trade War' over the coming months, the more rate cuts he will believe he can extract.

Therefore we should not expect a quick resolution to the 'Trade War' dramas. The ongoing market turmoil and rate cuts and a lower USD will be supportive to Gold, but we should expect that there will be periods when the Gold price will fall (as ever, nothing goes up in a straight line) as intermittently the market will believe that 'Trade War' fears are abating.

The wild card is Hong Kong. If there us a brutal Chinese crack-down on Hong Kong then the US attitude towards a resolution with China will harden. This will also be supportive to Gold.

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Your synopsis is centered on a negative correlation between stocks and gold.

Yet, measured over 12 months the correlation coefficient between SP500 and Gold is 0.38 and reducing the timeframe from May '19 to present day it is stronger at 0.45.

What criteria are you relying on to deduce a different outcome from the market is indicating ? Probability is currently in favour of Gold and SP500 moving together whether that is up or down.
1 Upvote

0 Great analysis

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