Is gold a hedge for trade wars?

Via Bloomberg:

Gold will surge to the highest level in five years if a global trade war breaks out, according to Rick Rule, chief executive officer of Sprott U.S. Holdings Inc., who’s been involved in the market for four decades.

Bullion could top $1,400 an ounce in 2018 as escalating trade tensions drive investors to havens and the three-decade bull market in bonds nears an end, said Rule, who’s due to speak at a conference in Hong Kong on Wednesday. Spot gold traded at $1,337.50 Tuesday after three straight quarters of gains, while exchange-traded fund holdings are around the highest in half a decade.

$1400? That’s hardly a hedge for global recession from today’s $1330.

That’s the rub. If trade wars really get going then stocks will crash and there’ll be a corresponding panicked repatriation into the USD. That’s not good for gold.

I note that so far gold has performed well whenever a trade war is mentioned and perhaps that will continue. So long as whatever tariffs are issued sink the USD then gold will benefit but that seems an asymmetric bet the wrong way around if trade wars really get going.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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