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The gold market is solidly higher in early action as hope has been rekindled for a significant deal on trade between the U.S. and China. Over the weekend, U.S. President Trump and Chinese President Xi Jinping agreed to hold off on further tariffs due to be initiated on January 1st, 2019.

A Step in the Right Direction

An article from cnbc.com quoted a statement from the White House as saying “President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent at this time,” the statement read. Over the next 90 days, American and Chinese officials will continue to negotiate lingering disagreements on technology transfer, intellectual property and agriculture.

“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent,” the statement added.

The agreement is certainly a step in the right direction, although there is still a lot of work to be done. The agreement could be considered a best-scenario outcome for the Presidents’ meeting which took place as both leaders are in Argentina for the G20 meetings. A lack of any type of positive dialog between the two leaders could have set the stage for significant market volatility on Monday’s open.

A Double Whammy

This weekend’s agreement on trade comes on the heels of commentary from the Federal Reserve that many considered to be dovish. A recent article from bloomberg.com stated “For investors convinced the stock market’s biggest burdens are a too-fast Federal Reserve and Donald Trump’s trade war, the last five days have brought a distinct lightening in the load.

First there were dovish words on interest rates from Fed Chairman Jerome Powell that raised hopes a bottom might form around last month’s low in the S&P 500. Now bulls are getting excited about a promise by the U.S. president and Chinese President Xi Jinping to put a temporary halt on new tariffs.”

The notion of an increasingly dovish Fed and a key agreement on trade could reignite the stock bulls in the weeks and months ahead. A less-aggressive pace of rate hikes and a deal on trade could also fuel increasing demand for commodities.

Market Reaction

The gold market is moving sharply higher in early trade on Monday with spot gold up by nearly $13 per ounce at $1232.73. The market is likely seeing buying today as the prospects for a deal on trade could potentially boost the global economy. This could then lead to an increase in demand for gold and other metals. The yellow metal may also be seeing some buying as the dollar has moved slightly lower today. A deal on trade could potentially reduce the safe-haven appeal of the greenback and could lift dollar-denominated assets higher.

Stocks are also sharply higher on the news today, with the Dow Jones Industrial Average up by nearly 400 points in early going.