US-China trade war escalates
The US-China trade war just got more dangerous. After some optimism last week with the two sides appearing to approach some sort of agreement, markets seem to have now lost all hope. On May 10, the United States increased tariffs on $200 billion in Chinese imports from 10% to 25%. And as promised, China retaliated with increased tariffs on $60 billion in US imports, resulting in panic selling. At 1:30 PM Eastern Time, the S&P 500 (SPY), Dow Jones Industrial Average (DIA), and NASDAQ Composite (QQQ) were down 2.7%, 2.72%, and 3.5%, respectively.
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Fear makes a comeback
With the fresh round of tit-for-tat tariffs and their impact on the global economy, fear has made a strong comeback. The CBOE (Chicago Board Options Exchange) Volatility Index was up 32.3% at 1:30 PM, close to its highest level since January. The index is seen as a barometer of equity market volatility.
Safe-haven assets and gold rise
Fear is usually good for safe-haven assets, which are up today, unlike most of the market. US Treasury yields fell to six-week lows as investors piled in, while the Japanese yen and gold benefited. The SPDR Gold Shares ETF (GLD) has risen 1.1% today, whereas gold miners (GDX), which usually act as a leveraged bet on gold prices, were trading even higher. Yamana Gold (AUY), Agnico Eagle Mines (AEM), Barrick Gold (GOLD), and Newmont Mining (NEM) have risen 3.2%, 3.1%, 2.1%, and 2.1% today, respectively.
The Fed’s pivot to dovishness this year was favoring gold, but US-China trade optimism was dragging it down. As expectations of reaching a trade deal have plunged, gold has started to shine. The metal’s outlook in the next few days will depend on negotiations between the two sides and Donald Trump’s comments. Any more escalation from here could boost gold and miners.