Tariff wars

On Friday, President Trump announced tariffs against China, Mexico, and Canada warning that the EU was in line for them as well. The statement offered no clarity concerning gold and silver imports.Tar

Markets will open on Monday uncertain about what Trump meant in the tariffs with respect to precious metals which he announced to start immediately. The common assumption is that it is a ploy to get the leaders of these nations to the negotiating table. But we can only assume that gold and silver are not excepted until we are told otherwise.

To say the least, if this is The Donald’s idea of negotiating, it is not the path to good trade relations. While the USA’s immediate neighbours might be scarred stiff and beg forgiveness for imagined sins, China and the EU are unlikely to take it lying down, seeking out US goods to apply tariffs in response. And don’t be surprised if China extends the ban of exports to America indefinitely of rare earths and other scarce elements under her control.

That’s how trade wars begin, destroying everyone’s economic potential.

This danger is bad enough, but there is a far greater crisis likely to be triggered. Because Trump’s tariffs will drive US consumer prices higher, the Fed will be forced to increase interest rates. But if the Fed decides not to, the dollar will lose purchasing power more rapidly than it would otherwise. Bond yields along the curve will almost certainly trend higher either way, tripping up overvalued equities into a potential crash and intensifying the US’s debt trap.

In short, Trump’s policies threaten to bring forward the collapse of the mightiest credit bubble ever seen with catastrophic consequences. This will be the background to the gold/dollar exchange rate in the coming weeks.

So, what do we know about the effect of the tariff question on gold and silver?