The strong dollar is currently carrying more weight in the gold market than the risk of a trade war, even though as each day goes by the pressure ratchets up.
The Europeans have now struck back at President Trump’s steel tariffs with a series of tariffs of their own on US imports. With the Chinese also squaring up to the Americans, that puts the US in the cross-hairs of the world’s two biggest economic trading blocs in the world.
It’s an interesting dynamic, because although the global economy remains heavily dependent on the US for prosperity, the combined economic might of the two powers that President Trump is busily facing off against does now outweigh the US by some margin.
According to World Bank statistics for 2018, the combined gross domestic product of the European Union is now only slightly behind that of the US. Add China to the European Union total and the combined GDP firepower ranged against the US is 75% bigger than the American economy as a whole.
No one will truly prosper in an integrated trade system that excludes the Americans, but there is certainly enough economic activity in the world now for the counterparties in Mr Trump’s game of poker to dispense with the need to bluff.
China has developed its Belt and Road policy precisely to circumvent US economic pressure. And if the US actually pushes the Europeans towards it, so much the better.
But in the immediate term, with the US economy roaring away as it is, Mr Trump isn’t likely to buy into such arguments. He has constituents with local issues that need addressing and a strong and vociferous support base that backs what he’s doing.
He has his own style, and at least for now he’s clearly setting the domestic agenda faster than is opponents can react to it. Overseas though, Mr Trump’s strategy is far more open to question. In a few short months he has gone from treating North Korea as a pariah state to holding it up as a model to be emulated. He blows hot and cold on Russia. He has antagonised NATO and the Europeans, America’s oldest allies, as well as the Turks. He is allowing the Chinese free reign in Africa. The Iran deal is off, allowing Iran to recommence with its nuclear programme. And climate change is off the agenda.
Whether or not this plays well domestically, what it does internationally is set a context in which the world no longer looks to the US for leadership on its major issues. To be sure, China is not yet ready to step up to the plate, the UN remains as toothless as it ever was, and the European Union is, to borrow Bismarck’s old phrase, more of a geographical expression than a political force.
But for some enterprising alliance or group of nations, opportunity is surely going to come knocking within a decade or so.
And when the US does finally get toppled from its global perch, the ensuing uncertainty is likely to send the gold price soaring, particularly in dollar terms. But of course, by then, it might not be in dollar terms that the real price of dollars is measured. Instead, it might be euros, or more probably remnimbi.
But be that as it may, the uncertainty that’s coming as the US begins to fade as the world’s pre-eminent power, no matter how much sound and fury successive Presidents can produce on social media, is likely to drive gold higher.
That won’t be any comfort for those who have been buying in the short-term, especially now that the months-long period of a rangebound US$1,300 price has now been broken.
But really, gold is bought for safety, and that best is expressed as a matter of long-term insurance. Which currency is traded in, isn’t really the issue. The issue is that it holds its value in the long term. And in the history of the human race so far, gold has never failed to do that.