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Is Gold Even A Recognizable Safe Haven Asset Anymore?

Gold

It’s increasingly beginning to appear like precious metal bulls just can’t catch a proper break no matter what. After one of the most significant geopolitical developments so far in the year, gold prices have hardly budged, raising fears that the yellow metal could be losing its traditional safe-haven status. Gold prices only turned slightly higher on Monday after President Trump on Sunday threatened to turn dramatically ramp up the ongoing trade war between Washington and Beijing.

On Friday, Trump threatened to ratchet up tariffs of 10 percent on $200 billion of Chinese goods imported by the U.S. to 25 percent and also warned that tariffs could be slapped on a further $325 billion of goods in future.

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Gold for June delivery was up a mere 0.22 percent to $1,284.10 an ounce after tapping a low of $1,278.10. Silver was down 0.32 percent as it continues to find little favor. That’s quite puzzling considering that the market has at this juncture fully priced in a trade deal. Trump’s commentary has shaken this thesis yet traders appear unfazed.

As expected, equity markets received a hammering, with the Dow Jones dropping 450 points while the S&P 500 lost 1.2 percent. Their Chinese peer, however, fared far worse with China stock markets tanking 5-7 percent overnight, their worst one-session loss in more than two years.

(Click to enlarge)

Source: Kitco

Trade talks on verge of collapse?

If you think Elon Musk’s marijuana-infused trolling on Twitter is shocking for a CEO, @RealDonaldTrump is the real tweeter-in-chief; a man who has redefined the possibilities of social media and single-handedly turned the chatty platform into a must-read political assault weapon.

Trump followed the Sunday tweet with another equally abrasive assault on Monday:

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Just last week, U.S. Treasury Secretary Steven Mnuchin described the ongoing Beijing talks as "productive".

Related: Apple Loses Ground In China As Huawei Hits Back

Trump’s hardline tweets could simply be an attempt to extract more concessions as the talks draw to a close. On the other hand, they could effectively set back the clock on months of hard negotiations with a real possibility that the worst could happen and the talks could end up collapsing.

"It's possible talks are breaking down, with China offering insufficient concessions, and an increase in tariffs a genuine prospect,” Tom Orlik, chief economist at Bloomberg Economics has told BBC.

Recent reports suggest that U.S. officials have become frustrated by China trying to row back on earlier commitments over a deal. Some sticking points have been the methodology of enforcing a deal, intellectual property protection and also whether or not to roll back tariffs already in place and how fast to do it. Trump’s latest polemic seems to suggest that Washington is not only unwilling to roll back existing tariffs but could actually escalate them.

Unfavorable Fed policy

The muted reaction by precious metal traders can largely be chalked up to the Fed’s unfavorable policy. Gold has been struggling for direction ever since Fed Chair Powell affirmed the central bank’s neutral outlook and effectively pushed back against growing speculation about a rate cut on the horizon.

Technically, gold bears still have a near-term advantage.

A nearly 3-month old downtrend still rules the daily chart with the bulls’ next upside price objective being to close above solid resistance above $1,300. It might therefore take more than Trump’s tweets to truly escalate safe-haven buying of gold and finally overcome the resistance.

By Alex Kimani for SafeHaven.com

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