Government debt plus tariffs

Due to a German public holiday, we are assessing the market situation as on Tuesday evening.

As the week kicked off with public holidays in New York and London, it has probably been somewhat quieter than it regularly would have been. Two topics were the most recent focus of attention: the US tax package and the potential rise in government debt resulting from it, as well as US trade and customs policy.

House of Representatives approves US tax package

Last Wednesday, the planned US tax package finally passed the House of Representatives by a single vote. It is now up to the US Senate to make any changes, particularly regarding its funding via spending cuts, which certainly leaves room for improvement and could well drag on until the beginning of July. Some senators – including members of the GOP – were skeptical about the significant increase in US government debt by several trillion US dollars resulting from the current package.

US customs policy causes volatility

Gold prices benefited from the obscurity surrounding the issue, as well as from two social media posts by US President Trump, in which he threatened the largest US smartphone manufacturer with tariffs of 25 per cent on products not manufactured in the US on Friday afternoon CET. Shortly afterwards, he went one step further by announcing a 50 per cent tariff on US imports from the European Union, effective from 1 June. Stock markets dropped noticeably upon this news, with bonds and gold, considered safe havens, in demand at the end of the week. After Trump announced a further ‘tariff pause’ in the US-EU trade conflict until 9 July on Sunday, the gold price retreated from the gains it had made over the previous days.

Gold prices fall slightly week-on-week

Last Wednesday morning, gold traded at 3,300 US$ per ounce. Following the above-mentioned events of last Friday, it rose to a weekly high of 3,365.50. After the US president’s U-turn on tariffs, the precious metal dropped to 3,320 on Monday and, after another moderate wave of selling yesterday, to around 3,290 US$ per ounce at around 18:00.

The Xetra-Gold price also weakened slightly week on week, first rising from 93.70 € per gram last Wednesday morning to 95.40 on Friday afternoon. Following the de-escalation in the trade dispute, Xetra-Gold was down to 93.15 yesterday (Tuesday) and ended the trading day at around 93.50 € per gram.

Starting Friday, we will see the publication of comprehensive economic data which could give us insight into the state of the real economy after ‘Liberation Day’: consumer prices, sentiment indicators, and much more. US trade and tax policy remain market-moving factors, but the markets may experience temporary respite until the beginning of July.

I wish all readers a happy holiday and perhaps even a long weekend.