For years, I and many others within the precious metals space have written about a hidden war that has been unfolding behind the scenes, to those with wide open eyes, you can see it, you can feel it. The currency and trade wars that Jim Rickards has written extensively about in many of his books is what I am speaking about, and now, things have just ratcheted up to a whole new level.
Over the course of the past week, the jaw boning from the US government, most notably President Trump, has turned into action and they have placed a number of trade tariffs on China. This is part of a campaign promise that President Trump made before he was elected and it appears that he intends on attempting to keep it, no matter how much it might "rock the boat".
These steps caught many investors off guard, including seasoned market veterans, as they have been so use to the government making bold statements, but never following through with any real action.
Not this time and the stock market is reflecting this new reality.
Chinese markets were sent for a roller coaster of a ride yesterday, dropping by 3-5% throughout the day, with key stocks dropping over 10% alone. A sea of red could be seen across the charts as the once cold trade war turned hot.
Today, it is the US markets turn, as China fired back overnight, sending Western markets plummeting in turn.
These actions sent the plunge protection team into full swing, resulting in this mornings pre-open bounce. Unfortunately, I don't see them being able to hold back the flood gates for too long, as this trade war is only going to accelerate from this point on, as neither side looks willing to back down.
The reality is, this is going to get incredibly messy and is going to lead to intense volatility within the markets. The one thing that markets hate more than anything else is uncertainty and we are about to get it in spades.
Fortunately, for any of you well established in your precious metals position, then you are sitting on a healthy insurance policy, ie gold and silver, as they unlike the markets, thrive in times of uncertainty.
Over the coming weeks, we will begin to get a clearer picture as to who truly holds the upper hand, and who is willing to take these threats to the next level. Both parties have extreme leverage on their side.
The United States, despite what many will tell you, has incredible power through its purchasing power, while China on the other hand holds enough US dollars within its reserve to crash the dollar overnight if it so chooses.
Regardless of who wins in the end, this is going to get ugly, messy and vicious. The trade wars that we have warned about for years have spilled over into the limelight and neither side can afford to lose, which means there will be no winner. Buckle up.
- As Originally Seen on the Sprott Money Blog
