Investors sought safe haven investments on a number of geopolitical risks, including protests in Hong Kong over an extradition bill and an attack on two oil tankers near Iran and the Strait of Hormuz, the world’s busiest sea lane through which a fifth of global oil consumption passes. After placing the blame on Tehran, President Donald Trump now faces a tough decision on how to respond, if at all.
Billionaire investor Paul Tudor Jones, founder of and hedge fund manager at Tudor Investment Corp., said in a Bloomberg interview this week that geopolitical disruptions have made gold his favorite trade in the next 12 to 24 months.
The yellow metal “has everything going for it,” he said, adding that if it can reach $1,400 an ounce, it will push to $1,700 “rather quickly.”
The biggest catalyst for such a move, Jones believes, is the ongoing U.S.-China trade war and the broader implication of shrinking global trade. After 75 years of globalization and free trade, we’re seeing a return to the use of tariffs and other protectionist policies.
Remember, it was the 1930 Smoot-Hawley tariff “that helped send the U.S. and world economy into a decade-long depression,” according to a 2015 article by now-National Economic Council Director Larry Kudlow and former Federal Reserve Board of Governors nominee Stephen Moore. Just last month, global manufacturers contracted for the first time since 2012 due in large part to trade tensions. World trade volume has also sunk the most since the financial crisis.
Meanwhile, Trump is threatening to impose tariffs on $325 billion in imports from China, in addition to the approximately $200 billion that are already being taxed. Trump and China’s president Xi Jinping are expected to meet later this month at the G20 summit in Japan, where hopefully the two leaders can hash out a resolution to the trade war.
Says Jones, this reversal in globalization “would make one think that it’s possible we go into a recession. It would make one think that rates in the United States go back down to the zero-bound level. Gold in that situation is going to scream. It will be the antidote for people with equity portfolios.”
The SPDR Gold Shares (GLD) rose $0.33 (+0.26%) in after-hours trading Wednesday. Year-to-date, GLD has gained 3.43%, versus a 10.26% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of US Global Investors.