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Gold, Silver Up As Trade War Fears Take A Breather

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Major world stock markets have taken out new highs on Monday following signs of progress in the U.S.-Mexico NAFTA trade deal and reassuring comments by Fed chair.

The MSCI International World Index, which gauges stocks of 47 countries has gained 0.6 percent to a five-month high helped by strong gains in the U.S., Europe and Asian markets. Meanwhile, the pan-European FTSEurofirst 300 index has risen by a similar margin, while the S&P 500 has gained 0.75 percent.

(Click to enlarge)

Source: Financial Times

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Source: CNN Money

U.S. Willing To Compromise

The United States and Mexico have reached an agreement to revise parts of the 24-year NAFTA (North American Free Trade Agreement) deal, a crucial step towards revamping the pact, which was seen as being danger of collapsing during earlier stages of the negotiations.

On Monday, president Trump said that the two countries would enter a new deal that will discard the NAFTA moniker and will instead be called the United States-Mexico trade agreement. Trump has frequently rubbished NAFTA terming it the “worst trade agreement in history”.

NAFTA was originally created with the objective to make it easier for countries to do business across borders in the belief that economic integration would foster prosperity for the three countries involved.

The pact, however, ended up having unintended consequences as the Economic Policy Institute said in 2013 that 700,000 U.S. jobs had been lost as production moved to Mexico where wages and labor costs are much lower by a factor of nine. California, Texas, and Michigan were the most adversely affected states by the capital flight.

Another 2014 report claimed that at least five percent of dislocated U.S. workers can be traced to imports from Mexico and that more than four million Americans lose jobs each year due to mass layoffs and plant shutdowns. Related: Stocks Move Higher As Fed Defends Gradual Rate Hikes

The new agreement, which excludes Canada,  gives Trump a significant win in a trade war that he has been waging against many countries across the globe, though it falls short of actually revising NAFTA. The president has hailed the preliminary agreement as “a big day for our country” and “a big day for trade”.

A key reason why the markets are excited is because the new deal adds to the sense that the U.S. is ready to compromise on its hardline stance against Mexico and the EU even as it continues to be bogged down in a major trade conflict with China. The agreement could ease further escalation of global trade tensions.

Dollar Slammed, Commodities Rise

Other than the new trade agreement with Mexico, the markets have continued on a run after Fed chair’s Jerome Powell’s speech on Friday where he reaffirmed that the central bank would stick to its strategy of gradual rate hikes.

That speech allayed growing fears that the Fed would put its foot on the gas pedal in a bid to rein in on an economy that’s been running on steroids.

The U.S. dollar has been slammed since those comments, with the dollar index falling 2.5 percent since Friday.

China’s yuan climbed to a four-week high after the PBOC revived a counter-cyclical factor in its daily fixing to support the currency and gave new hope that the record 10-week slide by the currency might finally be over.

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Source: Investing.com

As expected, a weaker dollar brought some cheer to the commodities markets.

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December gold futures (GCZ8) have gained up $26.50, or 2.2 percent, at $1,216.40, while spot gold is up 25.2 percent, or 2.3 percent, at $1210.40 since Friday.

U.S. crude CLcv1 rose 0.2 percent on Monday to $68.86 per barrel while Brent LCOcv1 was last at $76.11, up 0.38 percent on the day. Meanwhile, copper CMCU3 rose 1.38 percent to $6,069.00 a ton.

By Alex Kimani for Safehaven.com

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