Markets, US/China trade, Gold, Oil

• Markets

• US/China trade

• Gold

• Oil

Investors calmer as dust settles on US/China setback

It won’t come as a surprise to anyone to learn that attention is primarily on US/China trade talks again on Tuesday, after the prospect of a deal on Friday quickly turned into the threat of new tariffs.

This may all just be last minute wrangling as both sides dot the I’s and cross the t’s and look to gain final concessions but investors are nonetheless quite wary about the possibility of talks collapsing so late in the day. A deal was pretty much priced in, with the rhetoric of recent months very much being focused around the timing of a deal rather than the prospect of one but that has suddenly changed.

The initial response to the latest development was understandably very negative but as the dust settled and it became clear that talks will continue this week, the hysteria passed and investors instead went into self-preservation mode telling themselves that surely this is only a negotiating tactic. Surely months of talks can’t collapse this late in the day. The chances are they’re probably right but the tone of the negotiations now appears to have become less friendly which means the deal is in jeopardy.

Trade developments bullish for gold?

Gold was one of the unsurprising early winners on Monday, as the initial sell-off in equity markets triggered some safe haven flows. These gains faded as the day went on and investors became generally more calm about the prospects for trade talks but this could be a bullish factor for the yellow metal in the coming days. The dollar has generally performed quite well during any escalation of the trade war and we did see some early support which may have acted as a slight headwind for gold.

It will be interesting to see in the coming days whether gold sees additional support if fears become reality and new tariffs are imposed. Price action in gold has been very interesting of late and could be further complicated by these trade talks. The yellow metal has appeared to give bearish signals on a few occasions but fails to deliver upon this in any significant way. Just last week we appeared to be heading for new lows and a test of $1,260 and price immediately rebounded. The bulls are in no mood to give up easily and this may only invigorate them.

Was oil really responding to US/Iran reports?

Oil markets appeared to bounce back on Monday on fears of a potential flare up in the Persian Gulf between the US and Iran. Whether this did in fact play into the price action in oil markets is another thing, with the rebound also happening to coincide with a rebound in overall risk appetite. It also occurred around a notable support area in both Brent and WTI which suggests to me the reports are just a convenient story to explain something that would have happened regardless.