Likelihood of Trade War Makes a Stronger Case for Gold

Precious Metals

Stock markets took another beating last week as the trade war between the United States and China threatened to intensify. After President Trump slapped $50 billion worth of tariffs on China, China retaliated by placing the same amount of tariffs on imports from the US. Then President Trump decided to up the ante and floated the idea of a new $100 billion tariff plan. That’s the kind of escalation that many had feared might happen, only in the age of Twitter it’s happening much quicker than ever before, and without any sort of consultation or deliberation.

To politicians, of course, those numbers don’t really matter. They’re just intended for shock value, kind of like the $700 billion bank bailout during the financial crisis. Politicians aren’t the ones who will actually pay the bill for those tariffs. Ultimately it’s consumers who will pay that bill through increased prices, in what basically amounts to a new tax on buying imported goods.

Companies that export will be hurt as well, and every new round of retaliatory tariffs threatens to further stifle international trade, which will harm both the Chinese and American economies. That of course will have ramifications for stock markets, which have declined precipitously since the beginning of the year. And that of course will harm American investors.

Adding to worries of a trade war are President Trump’s comments criticizing Amazon, run by fellow billionaire Jeff Bezos. If Trump’s comments turn into new policies taking aim at Amazon, that could lead to higher prices for the tens of millions of consumers who make purchases on Amazon. There are even signs that President Trump may be favorable to enacting the Internet Sales Tax, favored by both Amazon and Walmart, which would require all internet sellers to charge sales tax, regardless of whether they are selling to in-state or out-of-state customers. That too will raise costs for many consumers and put a damper on their spending.

While President Trump had long touted the recent stock market gains as proof that his economic policies were working, he has since switched his tune. Earlier this month he stated with regard to the stock market that “we may take a hit, and you know what, ultimately we’re going to be much stronger for it, but it’s something we ought to do.”

It’s easy for him to say that, as a 10, 20, or 30 percent drop in the value of his investments still leaves him richer than 99% of Americans. But for investors who are hoping to retire in the next few years, that kind of drop could dash hopes of retiring anytime soon. Considering that it took nearly a decade for stock markets to recover back to where they should have been after the 2008 crash, many investors can’t afford to wait that long for the next stock market crash to recover.

While a looming trade war means that stock markets may be in for a rough year, that should be good news for gold. Whenever stock markets enter a correction, gold tends to shine. After double digit gains last year, this year looks to be one of continued strength for the gold market. With stock markets struggling to stay in the black for the year, gold investors stand to make out far better. So investors who want to protect their retirement savings should take a good, hard look at gold before stock markets get too much worse.

This article was originally posted on Goldco.

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