Daily Management Review

US-China trade dispute spurs demand for gold


12/18/2018


The trade standoff between the United States and China, as well as rhetoric of Fed representatives, has spurred investors to increase share of defensive instruments in their portfolios. The total assets of exchange-traded gold funds exceeded 2.16 thousand tons, reaching a maximum value in five months. In the case of a slowdown in the Fed’s rate, the demand for the metal, as well as its price, will continue to grow.



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The latest data from Bloomberg indicate a steady growth in the assets of exchange-traded funds investing in gold. Their assets have updated a five-month maximum, exceeding 2.16 thousand tons. Since the beginning of October, when the assets reached a local minimum, they have grown by almost 80 tons, and they added 24 tons in last week only. The return of interest to the precious metal had a positive impact on its value. On December 10, the price of gold rose to its highest level since the beginning of July - $ 1,250.3 an ounce.

International investors are increasing investment in the precious metal amid growing turbulence in the stock market caused by deterioration of relations between the United States and China. Earlier this month, US President Donald Trump and Chinese President Xi Jinping agreed to take steps aimed at concluding a trade agreement at the G20 summit in Argentina. However, almost simultaneously media reported about the arrest of the Chief Financial Officer of Huawei Corporation Meng Wanzhou in Canada at the request of the United States. This news has caused a collapse in the stock markets, including in the US. The arrest of a top manager of a Chinese corporation has caused investors to fear that it will now be harder for the United States and China to overcome trade disputes.

High investment demand for the precious metal contributes to the hope of softening the rhetoric of representatives of the Federal Reserve System (Fed), including its head Jerome Powell.

In such conditions, the outcome of the Fed meeting scheduled for this week will be of great importance for the gold market. According to Bloomberg, the futures market confidently points to a rate increase following the meeting on December 19 to 2.25–2.5%. However, the likelihood of additional rate increases after this has significantly decreased. In November, the likelihood of another rate hike in 2019 (to 2.75–3.00%) was estimated at 57%, at present, only 22%. Therefore, the regulator’s comments on the meeting will be of great importance for the market.

source: bloomberg.com






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