Daily Management Review

Trade confrontation between the US and China raised the price of gold


03/28/2018


On Tuesday, quotes of gold updated the monthly maximum, rising above $ 1356 per troy ounce. Investors are increasing their investments in precious metals amid a fall in the forecast of the Federal Reserve System (FRS) of the United States regarding the rate growth this year, as well as the intensified trade confrontation between the US and China. However, the market is not expecting a full-scale trade war, which means that the price increase will not last long.



BullionVault via flickr
BullionVault via flickr
Yesterday, according to Reuters, gold prices in the world market rose to $ 1356.66 per troy ounce, which is the highest value since February 16 this year. This result did not reach a two-year high of just $ 10, or less than 1%. Strong growth has been occurring for the fifth consecutive day, during which time gold has risen in price by 3.5%.

The increase in gold prices was noted against the background of the depreciation of the US dollar. Yesterday, the DXY (the dollar against the six leading world currencies) was down to 88.94 points, the lowest since February 19. The US currency started to weaken week after the announcement of the results of the Fed meeting, at which the regulator expectedly raised the rate by 0.25 pp. The market was suddenly surprised by the information that the Fed still holds the view that in 2018, in total the rate will be raised only three times. The outlook for future rate increases was less stringent than investors expected. As a result, the US dollar weakened against the euro and the yen, and gold quotes could grow due to this, despite the fact that real interest rates in the US are climbing up, which is generally negative for gold. 

The withdrawal of investors into gold is facilitated by the decision of US President Donald Trump to impose trade restrictions on China. The increase in duties may affect the import of goods worth up to $ 60 billion, and it will hit high-tech products the most. In response, China threatened to raise duties on a number of imported goods from the US. "Trade disputes and Washington's tougher position in the Middle East lead to nervousness in the financial markets. As a result, the demand for gold as a protective asset has demonstrated growth in the last two weeks. The increase in demand for metal-provided tools has led to an increase in gold quotations," says Norbert Rücker, head of commodity markets research at Julius Baer.

In such conditions, analysts do not exclude further growth in the value of gold. In the event of growing geopolitical risks, trade wars and the weakening of the US dollar, the rise in gold prices may continue. However, with the further increase in rates in the US and around the world, as well as the low probability of a full-scale trade war with China, it is difficult to expect a steady increase in gold quotations. "Raising rates and temporarily strengthening the dollar will exert negative pressure on gold in the short term," notes Norbert Rücker.

source: reuters.com






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