Tariff Resolution Looms, Gold Emerges as Preferred Asset for Second Half of 2024
Markets are bracing for a potential resolution to ongoing tariff debates, with analysts suggesting a softening of rates and a focus on the implications for inflation and the Federal Reserve’s monetary policy. Simultaneously, a growing consensus points to gold as the asset class most likely to outperform in the coming months, fueled by central bank demand and shifting global economic dynamics.
According to market observers, the current situation appears to be nearing its final stages. While a possible extension to the deadline – potentially to August 1st – has been discussed, significant developments are anticipated in the coming days.
Assessing the Impact on Equities and Inflation
The primary concern for equity markets revolves around how any tariff adjustments will impact two key areas: inflation and the Federal Reserve’s response. One analyst noted that a reduction in tariffs could mirror a Value Added Tax (VAT) structure, leading to a one-time inflationary impact rather than a sustained price increase.
However, the ultimate effect remains uncertain. The question of who absorbs the cost of these tariffs – companies or exporters – is crucial. Traditionally, businesses would pass these costs onto consumers, but current tariffs haven’t yet translated into widespread inflation. This suggests that either corporations or exporters are currently absorbing the financial burden. The resolution of this dynamic will heavily influence future Fed policy decisions. A more dovish stance from the central bank could potentially further stimulate the market rally, but this outcome is contingent on the final tariff rates.
The “Taco Trade” and Market Expectations
Market participants appear to be operating under a “taco trade” mentality – a belief that previous patterns will repeat and that aggressive tariff implementation will ultimately be avoided. “Looking at the way the markets have been trading over the past fortnight or so, it seems to me that most participants are leaning into a derivative of the ‘taco trade’—that is, the belief that Trump always chickens out,” one source stated.
While some speculation exists regarding potentially higher tariffs, a general acceptance of a more moderate regime – likely in the range of 10% to 14% – is taking hold. This rate is considered manageable by most accounts.
Gold’s Ascent: Driven by De-Dollarization and Asian Demand
Looking beyond tariffs, a senior market strategist identified gold as the most promising asset for the second half of the year. This preference stems from a combination of factors, including increased central bank purchasing driven by de-dollarization efforts and shifts in global reserve structures.
“I like gold. I’m more of a traditional gold buyer, and I’ve got some Asian influence after spending two decades here. The setup looks quite supportive going forward,” the strategist explained. Asian central banks, historically under-allocated to gold compared to their Western counterparts, are actively increasing their holdings.
A notable East-West divergence is also emerging in gold trading behavior. While some retail traders in the US are reducing their gold positions, anticipating less aggressive tariffs, strong buying activity continues in Asia, particularly in China and India. This robust demand is expected to support the physical gold market, even if North American interest wanes.
Ultimately, the strategist believes gold is poised for significant gains over the next one to two years, taking the lead as a preferred investment.
