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“Tariff Man” strikes again.
In a surprise tweet Thursday, May 30, President Donald Trump announced that, beginning June 10, the U.S. would impose a 5 percent tariff on all goods coming into the U.S. from Mexico “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” The tariff is scheduled to rise incrementally to a hefty 25 percent through October.
As I’ve explained elsewhere, including in an interview this week with Kitco’s Daniela Cambone, tariffs are essentially taxes that are paid by U.S.-based importing companies, which then pass the extra expenses along to the end consumer. If Trump’s Mexico tariff goes into effect, in fact, it will be the largest tax hike on Americans in approximately 30 years. As such, tariffs are inflationary. Historically, faster inflation has boosted investor demand for gold, and indeed, the price of the yellow metal crossed above $1,320 an ounce on Monday for the first time since late March.
Gold miners have also increased sharply. The NYSE Arca Gold Miners Index jumped nearly 4 percent in intraday trading on Friday, the group’s biggest one-day gain in two years. The S&P 500 Index, meanwhile, lost some $1.5 trillion in market cap in the month of May.
Investors also sought protection in U.S. Treasuries, whose yields fell to a fresh 2019 low. This pushed the already-inverted yield curve between the 10-year and three-month Treasuries deeper into negative territory. On Friday the yield curve sunk to 17 basis points (bps), its lowest level since well before the financial crisis. An inverted yield curve has preceded every U.S. recession over the last 60 years.
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