“Cry havoc! And let slip the dogs of war!”
— Mark Antony in William Shakespeare’s play Julius Caesar.
The U.S. is gearing up for war on multiple fronts: the trade front and actual, physical conflict. This is sending stocks and bonds on the Devil’s own roller coaster. The Dow reeled from its biggest one-day drop in six weeks. But you know who’s lovin’ this chaos? Gold, that’s who.
Gold spiked higher by more than $20 on Friday morning. Sure, we’ll see more volatility. That’s the name of the game. But gold is the eternal safe harbor. When people are scared, they go for gold.
Is there reason to be scared? Oh, yeah. Is the worst over? Not by a long shot.
The Trade War
President Trump has been talking higher tariffs for weeks. On Thursday, he decided to walk the walk, and rolled out $60 billion worth of tariffs aimed at China. This is on top of general steel and aluminum tariffs he previously announced.
China responded with tariffs on $3 billion in U.S. goods: Fruits, nuts, stainless steel pipes. But the Chinese are holding their fire until they see how America’s tariffs work out. In the firing line are soybeans, other agricultural exports, Boeing airplanes and more.
China’s ambassador to the U.S., Cui Tiankai, said that his country would “fight to the end,” in the case of a trade war. That’s tough talk for a country that has been robbing America blind of its intellectual property, and uses state-sponsored mercantilism to flood markets with cheap goods.
Yeah, President Trump has good reason to be angry about China and trade. Does he have the right solution? We’ll see.
The trade war will likely get worse before it gets better. And no one really knows which companies will get bloodied. That kind of uncertainty makes investors very nervous. It can even spark the kind of panic we saw on Thursday.
Investors should be wary of collateral damage to bystanders including the U.S. dollar and Treasuries. China was already weighing or halting purchases of U.S. Treasuries. At a time when the U.S. will run a deficit of more than a trillion dollars this year alone!
So, what usually goes up when the dollar goes down? Gold, that’s what. Gold is priced in dollars. Naturally, a weaker dollar will help gold.
Get Ready for a Shooting War
This week, President Trump also picked a new national security adviser, John Bolton. If that name is familiar, he’s one of the architects of the Iraq War. And he’s written recently about a pre-emptive strike on North Korea and bombing Iran, too.
Bolton’s agenda is not “peace through strength.” He believes strongly in regime change through war. This isn’t my opinion. This is what Bolton writes all the time. See here and here for examples.
And it’s fair to say that North Korea and Iran are at the top of a long list of regimes that Bolton wants to change.
This is scaring the living hairy bejeezus out of international investors. Especially those with a front seat on a potential North Korean conflict — South Korea and Japan. And those who are anywhere near the bubbling cauldron that is the Middle East. That includes Israel, much of Europe, many OPEC members and more.
Will investors in these countries stash some cash in the ultimate safe haven? That looks like a golden ticket of a bet right now.
Fortune is Fickle
To be sure, this could all blow over. President Trump might come to a trade agreement with China, one that is more fair to America. That would be great! But I’m not counting on a quick end to a trade fight.
Maybe age has turned Bolton into a peacenik pussycat. Or Bolton could exit through the same revolving door that has dumped so many White House staffers on the South Lawn recently. But I’m not counting on either of those options.
Mind you, there are bullish forces that could drive the market higher. I count five of them.
1. Strong earnings.
2. Continued economic growth.
3. Snoozing inflation.
4. The Fed raising rates at a measured, non-hurried pace.
5. A friendly political environment.
That’s what makes the market so uncertain. It doesn’t know which way the wind will blow next.
And what’s an anchor in uncertain times? You got that right. Gold!
One day or one week does not a trend make. Conservative investors will wait for follow-through before diving into gold.
But the yellow metal started a new bull market. And it spent a lot of time compressing recently. It’s coiled like a spring.
The next move in gold could be downright awesome!
Naturally, miners leveraged to the metal could move even more. I’ve noticed select miners outperforming gold and the markets recently. I guess that was a harbinger of the brewing storm. A storm that could see gold soar higher than most men can dream.
I just gave my Wealth Supercycle subscribers my five top precious metals picks. Do your own research. But that storm is coming. The winds are blowing, and if you listen, you can hear the words, “Cry havoc!” Get ready for what’s coming next. And one way to get ready is gold and select miners.
All the best,
Sean Brodrick
