Gold, Safe-Haven Assets Soars, ECB Warns Trade War ‘Extremely Detrimental’

Gold
Gold bars are displayed at a gold jewelry shop in the northern Indian city of Chandigarh November 4, 2009. (Photo: REUTERS/Ajay Verma/File Photo)

Prices of gold and other safe-haven assets closed high on Wednesday as fears of a global economic slowdown rise because of the continuing trade friction between China and the United States. Spot Gold gained .2 percent to $1,281.30 per ounce by 1:54 p.m. EDT and United States gold futures closed 0.3 percent higher at $1,281.

According to Jeffrey Christian, managing partner of CPM Group, it is not just the trade war but the status of U.S., Chinese and the European economies and Brexit hanging around there. He also said that, in this kind of environment, investors and corporations are not quite sure how to play this market.

He added that investors are confused about whether to go long stocks or short stocks, long bonds or short bonds. He said that they are siding with the precious metals. He projected that there will be a decline in the U.S. stock markets for the past couple of days.

OANDA senior market analyst Edward Moya said in a note that gold rises on trade angst but remains the least preferred safe-haven as investors flee to bonds. He added that the yellow metal has delivered limited gains on growing recessionary concerns, but that could change on the break of $1,300 an ounce.

The fears of world recession resurfaced because of the low macro data in major economies causing investors to seek alternatives for the currency. The European Central Bank (ECB) warned that the Growing uncertainty about global economic growth could lead to "bouts of high volatility" in financial markets.

ECB also said in its Financial Stability Review (FSR) that weaker-than-expected growth and a possible escalation of trade tensions could trigger further falls in asset prices.

The escalating trade war between the world's largest economies caused periods of heavy selling of global stocks. Since the start of the month, the Dow Jones Industrial Average index and the S&P fell more than 4.6% and 4% respectively since the start of May while the pan-European Stoxx 600 fell 5.2 percent for the month.

According to Luis De Guindos, vice president of the ECB, a full-blown trade war between the United States and China would be "extremely detrimental". He added that it could affect not only the volatility of markets but the real economy quite rapidly.

He also said that the escalating trade tensions would be "very negative news" for the global economy within the context of the current global economic slowdown.

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