This Week Is Hot. Will Gold Get Burned?

Over the weekend, the Swiss voters rejected the campaign to radically alter banking system, while President Trump withdrew his support for the joint statement of G7 and arrived in Singapore for a historic summit with North Korean leader Kim Jong Un. The Fed and the ECB are expected to tighten their monetary policy in tandem. It will be a hot period for the markets. Will gold blaze?

Switzerland Won’t Adopt Sovereign Money

Swiss people are skeptical about the soundness of the current monetary policy. A little under four years ago, they held a referendum for the Swiss Gold Initiative requiring the central bank to increase its gold reserves up to 20 percent. And on Sunday they held another referendum for the Sovereign Money Initiative banning commercial banks from creating money (we have already analyzed its economic effects in 2016). The voters rejected overwhelmingly both initiatives (about 75 percent of people rejected the SMI), but given the complexity of the matter and the status-quo bias, it is not a bad outcome. Hence, nothing has changed so far – but after the next financial crisis the initiative could be resurrected and could gain more support.

Trump Surprises at G7 Summit

Switzerland did not shake the financial markets. The summit of the Group of Seven was more interesting, as Trump rejected the joint communiqué initially agreed between the leaders and fired a series of angry tweets criticizing U.S. allies and Canadian Prime Minister Justin Trudeau personally (Trump called him “very dishonest and weak”). The unresolved trade issues and conflicts within the G7 should support the safe-haven demand for gold. However, Trump’s actions are often only a theater with an aim to gain the negotiation advantage. After all, he has recently proposed to end all tariffs and trade barriers between the U.S. and its G7 allies. “We should at least consider no tariffs, no barriers — scrapping all of it”, he said during the summit. Such a twist could withdraw some safe-haven demand from gold.

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