The Inflationary Effects of a Trade War

Recent dollar strength, stronger stocks and overall robust appetite for risk have all weighed on gold in recent weeks. Despite these headwinds, however, the yellow metal has not succumbed to any significant selling.

All of the issues potentially weighing on gold prices currently are likely temporary. Stocks will probably not continue to go up indefinitely, the dollar is likely to roll over again and there will come a point when risk aversion is a major market theme. There is another major issue, however, that is perhaps not getting the attention it deserves: The inflationary effects of a trade war.

The potential for a global trade war has been well-covered in the financial media, but exactly how this could hit consumers in the pocketbook still does not seem to be widely understood. At a time when inflationary pressures are already increasing-and the Fed has said it is comfortable letting inflation run temporarily above its target- tariffs and other measures designed to affect global trade could have a major impact on the prices of a wide variety of consumer goods.

Consider the steel and aluminum industries, for example. While tariffs may make U.S. producers more price competitive, they will raise the net costs of raw materials for manufacturers. Everything from machinery to appliances to basic nuts and bolts will become more expensive. As these higher costs work their way through the economy, not only could goods become more expensive, but jobs may be lost. Companies will be forced to pass these higher costs onto consumers until consumers reach the point at which they balk. Once this happens, companies will be forced to look for other ways to cut costs, and that primary way to do that is by cutting jobs.

The U.S. appears ready to take a hardline when it comes to global trade. While this may be a good thing in many respects, it also comes with a price. Depending on how far a trade war escalates, prices could see a significant increase, while overall economic activity could eventually slow down considerably as consumers try to carry the burden of rising prices.

Inflation is already running warm, and it is likely to get a whole lot hotter in the months and years ahead. A global trade war may only exacerbate the situation, and your dollars will buy less and less. This will effectively eat away at disposable income and even erode investment returns.

That is why right now is the time to build significant allocations in assets that can potentially provide a meaningful hedge against inflation. That is why right now is the ideal time to be buying and holding physical gold.

Gold has been considered a reliable store of value and protector of wealth for centuries. It is considered by many to be an effective hedge against inflation, and also comes with significant upside price potential.

Adding physical gold to your portfolio has never been easier. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how easy it is to start building an allocation in physical gold using your IRA account.

Don’t wait for a global trade war and massive inflation to take a bite out of your holdings. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.

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