Gold Gains Amid U.S.-China Trade Jitters Weigh On Equities

Gold Prices
Gold bars at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna, Austria (Photo: Reuters)

Gold prices up on Tuesday as the stock market weakened following the announcement of United States President Donald Trump to increase tariffs on $200 billion of Chinese goods from 10 percent to 25 percent and the safe has bullion demand improved.

Spot gold gained higher by 0.3 percent to $1,284.45 per ounce at 1:42 p..m. EDT (1742 GMT). Daniel Ghali, the commodities strategist at TD Securities, said that a dip in equities is keeping the appetite for bullion. Ultimately, we think portfolio allocations in gold are going to increase, keeping in mind if the trade war scenario escalates, that will work as a catalyst for more gold allocation.

The announcement of President Trump surprised the global market on Sunday after he said that higher tariffs will take effect on Friday if no trade deal with China is sealed. The announcement caused a global sell-off in equities and it sparked concerns of an upcoming slowdown in global growth.

Aside from the trade war, investors are also concerned about the statement from John Bolton, the national security adviser of Trump, which said that the United States deployed a carrier strike group and a bomber task force to the Middle East in response to troubling "indications and warnings" from Iran and to show Washington will retaliate against any attack.

The gain in bullion's appeal means a firmer dollar and it gained 0.2 percent which makes gold more expensive for investors of other currencies. Craig Erlam, a senior market analyst with OANDA said in a note that the dollar has generally performed quite well during an escalation of the trade war, and we did see some early support which may have acted as a slight headwind for gold. He also said that it will be interesting to see in the coming days whether gold sees additional support if fears become reality and new tariffs are imposed.

Many are still hopeful that the two nations find common ground. Some believe that the threat is just a negotiation tactic. The commerce ministry of China confirmed on Tuesday that Vice Premier Liu will continue the negotiation with the United States during his visit on May 9-10 at the invitation of senior United States officials.

TD Securities' Ghali said that this week the market will keep its eyes on the Twitter feeds and headlines on trade. He added that people have been thinking that Trump's announcement might just be a negotiating tactic, but we will figure that out in a few days.

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