Leveraged gold ETFs like the Direxion Daily Jr Gld Mnrs Bull 3X ETF (NYSEArca: JNUG) and Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT) sloughed off any possible negative effects of the escalating trade war between the United States and China.
In less than 24 hours, China responded to the latest salvo of tariffs fired off by U.S. President Donald Trump as Beijing announced it will impose $60 billion worth of tariffs on U.S. goods beginning on Sept. 24. The new round of tariffs from China are said to affect a list of 5,207 products within a range of 5 to 10% as both the U.S. and China have already slapped each other with tariffs worth $50 billion total.
An hour before the close, JNUG posted a minor loss at 0.79% and NUGT was up 1.11%, while in yesterday’s trading session, both surged–JNUG up 7.37% and NUGT up 5.99%–as investors sought to gold for safe-haven assets with trade wars looming. Gold prices in general have been able to slough off any effects of the recent trade spats.
“Traders now have bigger concerns that the U.S. could turn even more punitive if Beijing fights back…,” said Marios Hadjikyriacos, analyst with brokerage XM. “Gold [prices]continue to exhibit almost no interest in any developments on the trade front, remaining in a narrow range between $1,189 and $1,214” in recent action.”
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After the markets closed yesterday, the Trump administration announced it would be moving forward with imposing a 10% tariff on $200 billion worth of Chinese goods that includes a step-up increase to 25% by the end of the year. The administration moved forward with the tariffs despite both economic superpowers in the midst of scheduled trade talks to ease tariff tensions.
The new round of U.S. tariffs on 10% of Chinese goods signals that the U.S. won’t relent on the application of pressure to force China’s hand in making a deal when actual negotiations materialize. Purportedly, the goals of the lower 10% figure is apparently two-fold–to swing voters towards Republicans when mid-term elections begin and to lessen the blow for shoppers as holiday shopping is set to start this fall.
The list of goods affected by the new round of tariffs was apparently modified by the White House, which removed about 300 goods from an initial list that included smart watches, certain chemicals, bicycle helmets, high chairs, and other goods. Despite this, the latest actions could no doubt ramp up trade tensions, which could negatively affect the U.S. markets, but thus far, that hasn’t been the case as the Dow was up almost 200 points in today’s trading session.
“Going forward, the dollar and trade war may become separate influences as the inverse correlation between the dollar and commodities/trade sentiment is breaking down so far this week,” said Tyler Richey, co-editor of the Sevens Report. “That will likely lead to less correlation between precious metals and industrial metals.”
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