The trade war may not be over just yet but talks are developing in the right direction. US and China have agreed to work towards a deal in two or more phases with phase 1 expected over the next 3 weeks. Nothing is signed just yet but market optimism is warranted because the trade war has dragged on for more than a year now and so the market is anxious for a positive development and which it got. As part of the first phase, China will purchase between $40-50 billion in US agricultural products and address foreign-exchange issues with China. In return, US will hold off tariff hikes that were set to take effect next Tuesday. Treasury Secretary Steve Mnuchin said both sides struck an almost complete agreement on the currency and financial services issues although US Trade representative Robert Lighthizer said a decision had not been made over additional US tariffs scheduled for December.
So what to make of this? Steve Mnuchin himself said "We have a fundamental understanding of the key issues but there is more work to do" underscores it all. Like I expected , POTUS would take China's offer for additional purchases of soybeans in return for a suspension of the scheduled tariffs on October 15 . But there is no unwinding of the tariffs that were already imposed earlier. China possibly demonstrated that they have greater clarity on what US desires (especially in relation to IP and subsidy issues which will be part of Phase II) but only expressed their understanding without objection but that is not saying that they would agree , which I believe would be unlikely. So what happened POTUS on your "100pc or nothing"? Quite clearly, the man forgets what he says the next day after he said it. It is a good quick win for POTUS and one he badly needs for a man under seige. And China also desires to prevent the second round of tariffs from coming into force, which would adversely impact its economy. But to interpret these developments beyond merely what it is would be jumping the gun. The most inconsistent leader in modern history could well change his mind again as we've been here before. So after an initial outburst of euphoric optimism, I believe that once more analysis is done, more people would understand that CEOs of companies are only facing slightly less uncertainty and may still have to wait several months more to see if the dispute could be resolved. In the meantime, the global economy is facing the "have the horses bolted from the barn" moment. That said, overall it is a positive development and lets hope it stays that way.
IMO this does not mean one should exit gold and gold stocks - we saw gold falling initially but after it turned out , gold made a recovery to remain in the consolidation range of US$1480-1520/oz. The trade war is only one of the many prevailing risks facing the global economy and despite the positive development, it is still remains to be resolved. It does only look after the markets will have to face more issues after this October window as we have no binary outcomes this month in relation to both the trade war and Brexit. In other words, expect more choppiness ahead as we navigate these issues. And as for gold and gold stocks, I reiterate again that they should be looked at just for insurance (means modest exposure) and for the longer term, I am not a proponent of trading in gold stocks (I appreciate people do that for the junior end but for me I am buying the junior end for their mine prospect which eventually determines the company's share price prospects, not solely as a hedge against a specific uncertainty or risk).
We seem to have more risks developing - latest being an Iranian oil tanker being hit with missile (which caused gold to jump to nearly $1520/oz earlier in the night yesterday) , with suspicion that it is retaliation from the Saudis. And on the Kurdish front, Turkey's bombardment to create a buffer zone for itself is another source of geopolitical risk that could escalate into something material. If oil becomes a hostage arising from further adverse and material developments, the global economy could be hit at the time of its substantial weakness.
