It’s somewhat unusual that both the dollar and gold are trending upwards. But that’s been the situation lately, and there is usually one major reason for that to happen: Investors are looking to safe havens. If it gets bad enough, that could mean a recession.
Even if there isn’t a recession, however, the economic situation could be such to keep pushing the dollar higher. Note that the jobs data last Friday was a break in a months-long trend to the upside. It will likely require more than one data point to change direction permanently. If that were to happen, it could expose gold to a much higher price point, since the yellow metal is priced in dollars.
One of the data points that could incline the balance in favor of either option is global trade data. If the world’s economy is doing well, typically trade will increase. This often comes at the detriment of the dollar, as people move away from safe havens. But, if global trade is faltering, it could be a sign that so is the global economy. And that might mean that investors will keep piling into the greenback as a safe haven ahead of the uncertainty around year-end.
Additionally, the September-to-November trade window is an important indicator of consumer health. That’s when there typically is a boom in commercial shipments, particularly from China to the US, as stores build inventory ahead of an expected surge of demand for the holidays. But, if sales have been depressed through the year, then stores won’t need as much inventory. Or, if consumers are under pressure, stores might not buy as much stock in anticipation of slow sales.
Slowing trade figures from the world’s two largest economies could be a sign that the global economy is in trouble. But, if China sees slower trade, but the US sees faster trade, it could be a sign of global trade reorientation. The EU economy is stagnant, and teetering on a technical recession. China is still facing a slump in its housing market. The rest of Asia is seeing slowing demand as well.
If the US remains the major growing economy in the world through the next couple of months, it could keep the dollar in high demand. But also other stores of value, which would be attractive to entities that are having disputes with the US. Given the rising tensions between Washington and Beijing, China might be more interested in holding gold as a safe haven instead of dollars. Especially as trade conditions deteriorate in a sign of a global economic stagnation, if not a slump.
China will report first tomorrow, and is once again expected to see its trade surplus expand to $81.0B compared to $77.7B prior. But, this is thanks to exports once again falling faster than imports. Exports are expected to be -5.5% below last year, and imports -5.0%. Remember, last year at this time, many areas of China were still experiencing rolling lockdowns due to covid.
The US is expected to see a slight increase in its trade deficit to -$58.5B compared to -$58.3B, mostly because imports are expected to expand faster than exports. The strong US dollar typically makes it more interesting for Americans to buy more overseas, which hurts the trade balance. But, with both imports and exports expanding, it is still a sign of economic dynamism in the US economy.
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- Source: https://www.orbex.com/blog/en/2023/11/us-and-china-october-trade-balance-recession
