Trade-War Retaliation Could Boost Gold Demand

(March 7, 2018 - by Allen Sykora)

One of the potential outcomes of a trade war is that other nations start dumping U.S. Treasury securities, which could boost gold demand, says Goldman Sachs. Analysts put out a detailed research report outlining how U.S. President Donald Trump’s proposed tariffs on aluminum and steel could impact those metals as well as the industries that rely on them, both producers and consumers. Yet another impact could be capital flows, particularly from U.S. trade partners that are net savers, Goldman says. “Because these trade partners are large holders of U.S. Treasuries, it is often cited that they may retaliate by dumping U.S. securities at time when the U.S. Treasury needs to access global capital markets,” Goldman says. “If materialized, a reduction in U.S. Treasury holdings may boost the demand for gold, supporting our bullish view on gold prices.”

TDS on Trade War: Gold May Be ‘Winner in Relative, If Not in Absolute Terms’

Gold would be the “winner” at least in “relative” terms compared to other commodities if the U.S. triggers a global trade war, says TD Securities. The metal initially fell last week on hawkishly construed congressional testimony from new Federal Reserve Chair Jerome Powell, before recovering amid growing trade tensions after U.S. President Donald Trump proposed tariffs on aluminum and steel. After falling to nearly $1,300 an ounce, gold found “some respite as investors rushed for safety,” TDS says. The Trump tariffs could prompt retaliation by other nations, as well as an “unwinding of existing geostrategic relationships, with the center shifting toward China,” TDS says. “These policies look to be negative for aluminum, steel, base metals, crude oil, and PGMs [platinum group metals] due to the negative impact on demand. Gold would likely be the winner in relative, if not in absolute terms.”