The price of gold has changed dramatically after a provocative statement by the US President Donald Trump. What did the head of state say, and why did his words cause alarm in financial circles?
A new front in the trade war
On May 30, 2019, President Trump announced his intention to impose 5% tariffs on Mexican imports. Tariffs will be gradually increased until the Mexican government resolves the issue of a continuous flow of illegal immigrants into the United States.
All this is taking place against the backdrop of the ongoing trade disputes between the United States and China. Now the trade tensions heat up on the North American continent.
Mexico is the third major trading partner of the United States after China and Canada. Last year, the United States exported more goods to Mexico than to China, Japan and Germany combined.
On the map: the ranking of the US trading partners in terms of importance. The relations between the US and such countries as China and Mexico have worsened.
The economies of both countries are closely interrelated, so exerting more pressure on Mexico will lead to negative consequences for the United States. Economists believe that the confrontation with Mexico can do more harm than the US trade war with China.
The US car manufacturing companies like General Motors, Ford, Fiat Chrysler remain concerned since they rely heavily on the supply of spare parts and engines from Mexico. The USMCA is also under threat — a trilateral trade agreement between the United States, Mexico and Canada. The document’s ratification* was planned for this year, but now its future is uncertain. Donald Trump’s decision can undermine the trade relations between the countries of North America, damaging the economy of the entire continent.
The reaction of gold
The fears arising from the American president’s statement resulted in the gold price hike.
On June 10, 2019, the price of gold was $1,327 per ounce, rising by $51 since the beginning of the month.
The global trade tension poses risk of the US economic slowdown. Most experts surveyed by the National Association for Business Economics (NABE) believe that the US will enter a recession* by 2021. The downturn of the world's largest economy will inevitably affect other countries.
In such circumstances, gold will become a lifeline for savings.
It is expected that the position of the yellow metal will be strengthened due to the escalating conflict between the world powers.
In the photo: the US President Donald Trump and President of Mexico Andrés Manuel López Obrador. Will they come to an agreement?
The opinion of experts
Colin Cieszynski, chief market strategist at SIA Wealth Management:
"Trump's threats hamper the mechanism of the North American economy. The latest news highlights the financial market uncertainty. In this setting, gold will get ahead."
Jigar Trivedi, commodity analyst at Anand Rathi Shares & Stock Brokers:
"The demand for safe assets has grown, since no one expected the US to open a trade war front, setting against Mexico."
Day by day, the international trade rivalry intensifies, becoming even more unpredictable. More countries are involved in the confrontation which adversely affects the global economy. Business suffers huge losses, thousands of people lose their jobs and income.
The alarming situation makes many people think about strengthening Financial Security.
Gold is a reliable and safe asset
that gained trust of many people.
The surge of interest in gold clearly shows the vulnerable state of the global economy.
*Ratification — the final approval of an international treaty by the state’s supreme legislative body or the head of state.
*Recession (Latin: "recessus" – recess) — a general decline in economic activity or an uncritical decline of manufacturing, which is characterized by the lack of growth or a decrease in gross national product.