The bullish push continues to support gold as investors are seeking safe assets in this intricate geopolitical scenario. Trade tensions, currency war, dovish central banks and fears of an economic slowdown are the main reasons behind this rally. Among those factors, the so-called trade war between the US and China has been dominating markets moves in the last few days.
The new tariffs on $300 billion-worth of Chinese goods generated a swift reply from Beijing in the form of a depreciation of its currency, which jumped above 7 against the US dollar for the first time after more than a decade. This means that the trade war could complicate things for the US too, as China seems to be ready to play the game and with good cards. It’s export data are still solid, and the country can further devaluate the national currency in order to make its economy more competitive and at the same time strengthening it’s US dollar portfolio. Many are also wondering whether this could be Donald Trump’s gamble to add further pressure on the Fed to cut rates, two more times before the end of the year.
Photo by Sanmeet Chahil.
Maybe so, but the tycoon-president should now be aware that there are probably more risks than upsides deriving from this trade war. The reaction of stock markets was impellent, with a significant correction from the top seen in the last few months. This is a clear signal that one of the main victims of the trade war could be US companies themselves in the long run. A further escalation of the conflict would probably generate a loss – loss scenario for both parties involved and for the rest of the world too. The only winner, so far, was gold, with its price jumping above $1,500, it’s a clear telling that investors looking for a safe haven in a markets storm. At the same time central banks are continuing to accumulate bullion too, with record demand in Q1 2019 that reached 374 tonnes, led by Poland, Russia and Chinese central bank. While gold in sterling has already hit its record high, bulls are starting to reminisce about the record high of almost $2,000/oz bullion reached in 2011, not such a distant memory anymore.