The Gold Price Could Rise Sharply in the Next Few Months

Two important developments will affect the gold price over the next few months. The first is that President Donald Trump has all but declared a “cold war” on China, all but identifying it as the principal culprit for abusing American technological innovation and violating copyright norms. Trump has also stressed he wants to change the balance of trade in America’s favor.

The second is that the Federal Reserve’s quarter-percent interest rate hike, announced on March 21, may have caught several investors by surprise. Given the optimistic chatter about job growth and supposedly rising wages—therefore, higher inflation prospects are on the horizon—the small increase warrants a sobering perspective. Rather than a bullish move, the U.S. dollar has dropped slightly against major international currencies.

The markets seemed disappointed by the fact that instead of four rate hikes in 2018, Powell said there would be only three. Wall Street and fickleness go hand in hand. Rather than interpreting this step—because it supports taking risks on stocks—investors have reacted with caution.

The U.S. Economy Still Faces Obstacles

It’s as if, by applying a moderate rate hike, Powell had conceded that dark clouds are lurking. The U.S. economy may not be performing as high as many have enthused over. But the risks on the horizon are becoming less abstract now.

Trump wants to impose some $60.0 billion in tariffs on Chinese imports alone. The fact that he’s let Europe, Australia, and NAFTA partners off the hook sends a clear message to Beijing—and may even get some quiet/behind-the-scenes backing from Brussels. Yet, Trump and Americans, in general, should expect consequences. China is a country on the economic and military ascendant. It’s not going to put its head in the sand like an ostrich. China will react.

The question is how. There’s no doubt that Trump’s tariffs are going to hurt China. The president is determined to reduce the trade deficit, which is largely in China’s favor. In some ways, China has become a victim of its own success. The risks are on both sides of the Pacific; equity markets could suffer. The Chinese government has banned Bitcoin trading on its territory.

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