The balance of trade
The balance of trade is the difference between a country’s monetary value of exports and imports. A positive balance is known as a trade surplus—that is, exports are greater than imports. A negative balance is known as a trade deficit.
The relative value of the US Dollar Index compared to other currencies is affected by changes in the balance of trade. A trade deficit means foreign goods are in demand, which increases the demand for foreign currency. US dollar, or USD, outflows increase. Over a long period, this leads to USD devaluation.
US trade balance at 11-month low
The trade balance is reported monthly by the U.S. Bureau of Economic Analysis, or BEA. The overall US trade deficit in goods and services was $39 billion for November, down 7.7% against a revised $42.2 billion for October. This was the lowest trade balance in the last 11 months, as crude oil imports dropped to a two-decade low. US exports slipped 1% to $196.4 billion, as sales of commercial airliners fell but imports fell more than exports.
The above chart shows the relationship between gold prices and the trade balance. Recently, the trade balance has been negative. Since trade balance values are negative, an upward-moving line means a decrease in the deficit, and vice versa.
Meanwhile, trade balance and gold don’t have a linear relationship. There may be other, stronger variables affecting gold prices, such as the strength of the USD. An expanding trade deficit leads to more pressure on the dollar. A constantly expanding trade deficit is positive in the long term for gold prices and ETFs such as the SPDR Gold Shares (GLD).
An expanding trade deficit is also positive for gold stocks such as Goldcorp (GG), Barrick Gold (ABX), Newmont Mining (NEM), and Kinross Gold (KGC). It’s also positive for ETFs that invest in these stocks, such as the VanEck Vectors Gold Miners ETF (GDX). GG, ABX, and NEM are its top holdings, making up 25.7% of its total assets.
There are 14 known gold ETF holdings. These include the SPDR Gold Trust (GLD), the largest physical-gold-backed ETF.
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