Trade deal agreements seem to be the most talked about topic globally. There are several countries which are reviewing their current trade deals. It was recently announced by Theresa May that Britain will no longer have access to the Single Market. The need for a free trade deal is crucial. Before the speech, Donald Trump offered the possibility of a quick and fair trade deal between the UK and the USA. Even though this may seem like good news, there seems to be an array of trade deal conflicts around the globe.
Current Trade Agreements
Donald Trump believes that existing free trade agreements have caused damage to the US economy. However, he announced recently he would be happy to enter some form of a trade deal with the UK. There is a possibility that if the UK and the US enter into a trade deal it would be more so on Trump’s terms. Even though Trump is offering to form new trade agreements, he has expressed his disapproval of current trade deals which were made before his presidency began. He has taken aim at the North American Free Trade Agreement calling it the single worst trade deal to happen to America. Trump also made it clear, even before he was sworn into office, that he wished to withdraw from the current Trans-Pacific deal.
The main trade agreement which Trump has now withdrawn from is the Trans-Pacific partnership or more commonly known as the TTP. The 12 nation pact was between US, Japan, Australia, New Zealand, Canada, Malaysia, Vietnam, Singapore, Brunei, Mexico, Peru and Chile. The deal was negotiated to reduce tariffs and deepen ties between the signatories. The deal was to simplify trade between the countries. As Trump has withdrawn China are looking to fill the gap. However, this trade deal is not to be confused with the TTIP or the Trans – Atlantic Trade and Investment Partnership. This is a proposed deal between the EU and America which has now also been abandoned.
America vs. China
Throughout his presidential campaign, Trump often passed comment on China’s activities. China has been accused of ‘dumping’ steel and various other items on the US market at a below fair value. In turn, this left America unable to compete. According to statements made by Trump, this then caused mass job losses. As a result of this in 2016, America began imposing heavy import tariffs on China. It is not only China’s trade tactics which have been pointed out by Trump. He has also complained of China manipulating their currency. This is particularly interesting as the Chinese Yuan is set daily against the US Dollar. He believes that the Chinese are keeping their currency value artificially low making exports cheaper to buy and so maintaining a competitive edge. Whether this is true or not, Trump is targeting China.
Trump’s intentions are to use the current deficit which America is faced with to their own advantage. Due to this, there has been a lot of talk regarding a possible trade war between America and China. This is a big blow to China as they have made large investments in the US over the past 5 years or so. The only concerns being how unpredictable Donald Trump can be. This, in turn, is causing China to prepare for a trade war. However, they would rather negotiate a deal and are currently offering some form of communication. Past events show that there is more of a positive outcome when China and America work together. However with Trump targeting China, the chances of amicable talks may be slim.
Current Gold Prices
As we know, Trump is not afraid to speak his mind and has recently taken aim at China via twitter. By publicly airing his grievances, Trump is causing a lot of animosity between the two countries. However, the events are having an interesting effect on gold prices. Trump is controversial; his impulsive ways may also be his downfall. Gold prices have been firming at the prospect of a trade war. However, the US Dollar has been very volatile. Since Trump’s win, the dollar has strengthened and it is now the main focus for investors in 2017. As well as this it is proven that there are gold price gains when a new president is sworn into the White House. It is recorded that since 1974 there have been average gains of 15% in inauguration years.
Gold prices rose an incredible 30% in 2009, the year Obama was inaugurated. After the inauguration, we saw gold prices hit a 2 month high. In January alone we have seen gold prices jumping 5.7% from the lows seen during the last quarter of 2016. We are currently seeing gold prices going against a stronger dollar and the uncertainty of a Trump Presidency. Spot prices were down by 1.2% by 13.10pm on 26th January 2017 due to a slightly stronger dollar. There is also the prospect of the US Federal Reserve boosting interest rates again in the near future so that will give the US Dollar another boost. However due to the US job data being released on Friday 3rd Jan 2017, gold prices were back on the rise again. A Trump presidency continues to have a profound effect on gold prices.
How Will A Trade War Affect Gold Prices?
Due to all of the uncertainty, it is hard to predict what will happen between America and China. It seems they are currently only trading word. During the World Economic Forum in Davos, the Chinese president Xi Jinping spoke of his reluctance to enter into a trade war. Even though he was not speaking about Trump directly, Jinping said there would be no winners in a trade war. America and China are aware of how big each other’s economies are. It would be a lot easier if they were to cooperate. Something which is interesting is the relationship Trump is establishing with Indian Prime Minister Narendra Modi. It looks like Trump may be searching for allies. If a trade war begins, it is more likely people will begin looking for a safe haven investment.
Gold is a safe haven investment and China is one of largest importers of gold. If a trade war begins people will begin looking for a safe haven investment and gold prices may soar. This would depend on a few factors and how prepared both America and China are. With both countries preparing themselves for the possibility of a trade war it is hard to determine who will come out on top. Both countries have put forward statements which undermine the other country. The main consideration when trying to predict gold prices on the outcome of a trade war would be the stability of the US dollar. A weaker dollar should drive gold prices higher.
You can track the gold price on our live charts here to see how world events affect the price of gold and to help you choose the right time for you to invest in gold. Also take a look at our best value bullion page for our best deals on bullion.