President
Donald Trump has ordered import tariffs on steel and aluminum and sought
new restrictions on Chinese investment. Asia’s top economy retaliated
by imposing its own levies on Monday, while the US is expected to
release this week a new list of Chinese products to be slapped with
duties. A
trade war could crimp demand for US assets just as the budget deficit
swells, with the dollar vulnerable should international buyers shun
American debt.
“In the 40 years I’ve been involved in the gold market, the most
important determinant of the gold price has been international
confidence in the US dollar and in particular, the US dollar as
expressed by the US 10-year
Treasury,” Rule said in an interview March 29.
“The fact that the US
seems to be bound to engage in a zero-sum trade war has begun to strike
people as something that’s bad for everybody in the world, not just the
US. The potential for a winnerless trade war certainly gives cause to
some concern.”
The aggregate federal, state and local debt in the US, both on
balance sheet and entitlements, relative to levels of savings and
investments in the economy, will contribute to worries over the
longer-term purchasing power of the dollar, particularly in view of low
current yields, Rule said.
Rising income and savings in Asia, a region
with a disposition for gold buying, could also lead to more demand, he
said. Sprott US Holdings is a subsidiary of Toronto-based Sprott Incorporated,
which had C$11.5bn ($8.9bn) under management as of December 31.
An easing of the China-US trade row may damp bulls’ enthusiasm.
China on Monday urged talks to prevent greater damage to relations, and
repeated its position that disputes should be resolved with dialogue.
Plus, the biggest US tax overhaul in years signed into law by Trump in
December will provide more stimulus to the US economy and may curb
the impact on the budget deficit.
BNP Paribas predicted at end-February bullion will probably be lower by the end of
the year than the start, with four Federal Reserve rate hikes expected
in 2018, while IHS Markit sees gold dropping to $1 200 by the year-end.
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