Gold Takes Biggest Dip of the Year, Awaits US-China Trade Truce

The Standard & Poors 500 Index closed out last week at a record high Monday, driven mostly boosts to tech stocks, the 2,964.33 value beating the index’s June 21 high.  Market experts say this could shore up more optimism about potential trade deals between the US and China.

In addition, the Dow Jones closed 0.44 percent up—at 26,717.43—with the tech-heavy Nasdaq Composite closing out more than 1 percent, at 8,091.16 on the day.

Unfortunately, the upward shift in financial markets was not matched by gold values.  The normally safe asset metal has, apparently, fallen into uncertain times, dropping about 2 percent to $1,382 per ounce.   While the drop might not appear to be that much, the new price point is lower than what the market regards as type of breaking point.  

The slide in gold comes after a bolstering month, as the commodity jumped 10 percent in June, to reach its highest value in the past six years.  Of course, uncertainty surrounding the US-China trade agreement came to head last month, with the Federal Reserve pivoting towards a more conservative outlook. This, obviously, is a sign that an interest rate cut is looming as a means to shore up a potentially weak period of economic growth.  

This is important, of course, as gold is a major asset that [US] investors monitor during times of economic uncertainty (such as we are in right now).  Indeed, during times of weaker economic growth, the precious metal is generally considered more valuable, particularly as a safeguard against inflation. 

With the US-China trade deal coming closer to fruition over the weekend, investor confidence that some riskier assets will outperform remain high.  Actually, the S&P 500 has already added 17 percent in values this year, and that absorbs some small losses over the past week on the heels of investors awaiting the outcome of the G20 summit.  A trade-war truce between the US and China could easily help restore gold’s climb.

To put this into a different perspective, gold is not the only safe-haven asset to tumble. While the US dollar saw a bit of a bump and the [offshore] Chinese Yuan rose 0.6 percent against the greenback, both US Treasurys and the Japanese yen experienced decline.