After the eleventh-hour announcement of a Phase 1 U.S.-China trade agreement to roll back some tariffs, market participants have hardly had time to breathe or digest the data. There’s already talk of a sequel, Phase 2, but don’t assume that the outcome will mirror the equities melt-up of the first phase.
As often as it happens in mature bull markets, index-fund investors appear to have gotten ahead of themselves. The U.S. and China have different versions when it comes to the details of Phase 1, with China’s official statement seeming to suggest that existing tariffs won’t be rolled back. There’s also inconsistency concerning the types and amounts of agricultural products that China will import from the U.S.
It didn’t matter, because the news of a trade deal being struck overtook the headlines and markets soared.
Major-market index traders shook all of this off and bought with both hands, of course. They priced in Phases 1, 2, and pretty much the entirety of the trade deal that once rocked the market but now supports it.
This is exactly what we’ve been calling for. And that is when perceived uncertainty is met by markets, markets would have a relief rally.
Both sides of the tariff dispute needed to save face and tell their respective constituencies that progress is being made; moreover, they both needed to leave the door open to more progress, more deals, and more asset-price inflation.
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And speaking of inflation, the Phase 1 announcement – along with the Federal Reserve’s declaration that they’re going to let inflation “run hot” and “play catch-up” – hammered the U.S. dollar to its lowest level since July. After a multi-year dollar bull market, the end is near and the dollar’s decline is just getting started.
That, naturally, is massively bullish for gold investors.
President Trump has made his intentions clear:
-Make the dollar cheap so it will be easier to pay off the interest payments on the national debt.
Now with the Fed finally on board, there’s nothing standing in the way of complete dollar capitulation – and gold’s best year ever.
Remember, when it comes to policy makers, gold isn’t in the family when it comes to priority. Policy makers will side with the markets and inflation all day long.
Gold will simply react to when the policies set in place ultimately endure stress.
At the very least, investors who don’t already own gold should seriously consider it as a hedge against the inevitable unwinding of extreme stock-market complacency and outright euphoria. A “no fear” market environment is a scenario that doesn’t end well, and with the current bull market being the longest one on record, we’re truly in uncharted territory.
Gold, in contrast, provides the security of a fully known quantity: enduring value as a crisis hedge and a universally recognized, tangible asset. As 2019 winds down, I expect any downward pressure on precious metals to be temporary and brief – an opportunity to be seized before the window closes.
When risk-on shifts to risk-off, you’ll be glad that you took some profits in large-cap stocks and moved into a precious-metals allocation. It’s easy to sleep soundly, knowing that your wealth will be preserved and fully secure – gold will survive long after Phases 1 and 2 and beyond our lifetime’s preserving wealth for generations to come.
Chief Editor, CrushTheStreet.com
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