Trade War pushes gold prices high

Gold prices ended last week on a high note as prices rose on Friday over the escalating US China trade war. Gold posted a weekly rise as the United States raised tariffs on Chinese goods and increased fears of a global economic slowdown, with a weaker dollar also offering support to the precious metal.

On May 9, the US government announced that since May 10, 2019, the tariff rate imposed on the $200 billion list of goods imported from China has been increased from 10% to 25%.

The above measures by the United States have led to an escalation of Sino-US economic and trade frictions, contrary to the consensus between China and the United States on resolving trade differences through consultations, jeopardizing the interests of both sides and not meeting the general expectations of the international community.

The United States intensified a tariff war with China on Friday by hiking levies on $200 billion worth of Chinese goods amid talks to rescue a trade deal. U.S. President Donald Trump said on Friday he was in no hurry to sign a trade deal with China.

Uncertainty over the real impact on [the] U.S. economy and Chinese economy was driving gold prices higher.

Gold pieces rallied over the following-

  • The levy of increased tariffs by the Trump government has increased the demand for safe haven assets like gold and bonds mainly because equities saw a sharp drop over the trade war. Rise in demand ultimately resulted in a rise in gold prices
  • Another spill over effect of the trade war can be seen in the fact that the US Federal Reserved may be forced to cut interest rates which will further result in a rise in the yellow metal.
  • Global anxiety has also seen an uptick as U.S. bombers arrived at a U.S. base in Qatar. The bombers have been sent to the Middle East to counter what Washington describes as threats from Iran.
  • Bullion was also supported by a weaker dollar which fell after data showed a smaller-than-expected rise in the U.S. consumer price index last month.

Initially markets were expected that a trade deal will be struck between the two biggest economies of the world. However what happened over the weekends was much beyond market expectations.

A full-scale trade war between the US and China began. This war of words is closer than ever after Beijing hit back with retaliatory tariffs on Monday. The Chinese Yuan fell by more than 1%, prompting a selloff in copper, while gold jumped $11 to 1299 and Bitcoin hits $7400. USD fell across the board on reports that some Chinese scholars have mentioned Beijing taking the “nuclear option” — selling US treasuries. Risk trades have been hit hard to start the week with safe haven assets surging.

After vowing over the weekend to “never surrender to external pressure”, Beijing defied President Trump’s demands that it not resort to retaliatory tariffs and announced plans to slap new levies on $60 billion in US goods.

  • China Says to raise tariffs on some US goods wef June 1
  • China Says to raise tariffs on $60B of U.S. goods
  • China says to raise tariffs on 2493 U.S. goods to 25%
  • China may stop purchasing US agricultural products :GLOBAL TIMES
  • China may reduce Beoing orders: GLOBAL TIMES
  • China additional tariffs do not include U.S. crude oil
  • China raises tariff on US LNG to 25% w.e.f. June 1
  • China to raise tariffs on import of S. rare Earths to 25%

Here’s a breakdown of how China will impose tariffs on 2,493 US goods. The new rates will take effect at the beginning of next month.

  • 2,493 items to be subjected to 25% tariffs.
  • 1,078 items to be subject to 20% of tariffs
  • 974 items subject to 10% of tariffs
  • 595 items continue to be levied at 5% tariffs

In further bad news for American farmers, China might stop purchasing agricultural products from the US, reduce its orders for Boeing planes and restrict service trade.

Chinas announcement of counter tariffs acted as a booster for gold prices and resulted in its rise. There have been talks in the market that the Peoples bank of China may start dumping Treasury’s. But will it also dump US stocks and real estate? Well now we get concrete reasons behind the piling of gold reserves by the biggest gold consumer of the world.

 

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