Recently, we discussed some of the potential implications of a global trade war following the Trump administration’s decision to impose tariffs on steel and aluminum. Regardless of what side of the aisle you may be on, investors are still trying to decide just how significant an impact such tariffs may have on companies and financial markets.
Following the decision, economic advisor Gary Cohn submitted his resignation yesterday. Cohn was considered to be a strong supporter of free trade, and apparently did not feel he could continue in his role while having some significant differences of opinion on such matters.
Whether or not the decision by the administration proves to be the right one remains to be seen, but it is currently making investors anxious. Once the news of Cohn’s departure hit the wires late yesterday afternoon, stock index futures tumbled, with the Dow dropping well over 300 points. Stocks are lower today, however, they have clawed back much of the overnight downside.
The recent tariffs and seeming willingness to go to war on trade point to a protectionist agenda. While the longer-term effects of such an agenda are not clear, it is causing some bumps along the way. Investors may, therefore, be a lot more willing to book profits and take some risk off the table. The extent of any stock selling will likely depend on just how far a trade war escalates.
Such a scenario can potentially be a big positive for gold for two reasons: First, the dollar index could slide even further if disagreements over trade escalate. The greenback has already seen a major slump in recent months, and it remains vulnerable to another significant leg lower in value. As the dollar declines, it takes your purchasing power down with it.
Secondly, a trade war could hit stocks and risk assets hard-at least in the near to medium term. The sharp drop seen last night and today could simply be the tip of the iceberg. Investors may be far more likely to shed risk as the unknowns surrounding a global trade war weigh on risk appetite. In such a scenario, investors may seek out perceived safe haven assets, and the yellow metal could be at or near the top of the list.
As the old saying goes: “It’ll get worse before it gets better,” Trump may have a sound plan that could potentially benefit American industry in the long-run. That being said, however, such a plan could come with considerable short-term pain in order to achieve long-term gain.
Looking at the bigger picture, the possibility of a global trade war is just one of several key issues that could weigh on risk assets. Rising inflation, higher rates and the risks of recession could all fuel a flight to safety.
If you don’t already own gold as a significant component of your portfolio, now may be the ideal time to get started.
Adding this key asset class has never been easier, and it can potentially provide not only the possibility of significant price appreciation, but it can also potentially provide a meaningful hedge against a lower dollar, inflation and even weaker equities.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how to incorporate this important asset class using your IRA account.
Don’t wait for further dollar weakness to erode your purchasing power or for the next big stock market crash to wipe out billions in investor value before taking action. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, gary cohn, gold, protectionist, steel, tariffs, trade war, trump administration