Gwen Preston: A Trade War Won’t Faze Gold, but Base Metals Could Suffer

In a presentation for investors at the Prospectors & Developers Association of Canada (PDAC) convention, Gwen Preston of Resource Maven gave her take on the impact commodities like gold and base metals stand to see from trade talks and potential trade wars.

According to Preston, there are two possible paths for the market that can be simply broken down as: deal or no deal.

Read on to learn what the expert had to say about the two possible scenarios. And if you couldn’t make it to PDAC, don’t worry — we’ve put together a pictorial overview of the main highlights of day one here.

Deal

If a trade deal goes through, fears will ease, confidence and growth will return and markets will get a temporary boost. Preston has her bets placed on a deal happening, saying that leaders are strongly incentivized to make some kind of agreement go through.

“If we get a trade deal, which I certainly think is the likely outcome, I don’t think it is going to resolve all of the fundamental differences that are on the table,” she said.

“For metals investors, what matters is that a return of confidence and growth broadly means that base metals will get their chance. They would get that chance as long as we get a trade deal that returns confidence and certainty to the broad picture.”

Preston also acknowledged the connection between growth in commodities such as gold to the performance of the US dollar, saying a deal could push down the greenback.

“I think the US dollar would likely weaken some in the case of a trade deal, because the US dollar gets bought in the face of uncertainty, so the return of some certainty would likely weaken the US dollar. Not a dramatic move, but it would weaken the dollar, which would help metals across the board.”

Gold is considered a safe-haven commodity for investors, as the softening of the US dollar can cause it to grow and flex its market value.

No deal

On the other hand, if a trade deal doesn’t happen, pessimism will rule as markets slip and growth crumbles. However, Preston has a great deal of faith in gold should a trade deal not come together, highlighting its resilience in times of economic doubt.

“We always talk about gold as a safe haven, but … gold is a safe haven. It moves almost exactly in opposition to economic confidence. Credit spreads widen when confidence goes down, and go down when confidence goes up. Gold truly is the opposite of economic confidence. Knowing that … if we don’t get a trade deal, gold will do well because confidence, already weak, will plummet.”

Despite the positive movement that the yellow metal could see, she maintains that a sinking stock market will eliminate opportunity for base metals.

“[If we] don’t get a trade deal … I think the uncertainty, lack of confidence and deterioration of sentiment all take over,” she said, adding, “in that case gold would really outperform because it would be a complete safe-haven situation.” Preston continued, “the unfortunate side of that path is that base metals would be denied their opportunity.”

The Resource Maven founder and editor elaborated by saying that with certainty, businesses are able to put expansion and investment plans into action, ergo boosting growth. But without that level of confidence, companies can hesitate on taking further steps forward.

“From across sectors … everyone is saying, ‘with tariffs and Brexit, I don’t know what to do, we don’t know what to do, we can’t make business choices, we can’t make investments’ — business is slowing for these reasons,” she said.

“What we really need to pay attention to are those trade negotiations, and if it becomes clear that we are not going to get a trade deal, I plan on exiting my base metal positions.”

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.