Gold gains on U.S.-China trade, global downturn fears

May 29 (Reuters) – Gold prices rose alongside other safe-haven assets on Wednesday as the trade rift between the United States and China showed no sign of cooling, with investors fearing a global economic slowdown.

Spot gold rose 0.2% to $1,281.03 per ounce by 10:35 a.m. EDT (1435 GMT), while U.S. gold futures were up 0.3% at $1,280.50 an ounce.

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

“Investors are confused whether to go long stocks or short stocks; long bonds or short bonds. So, they are siding with the precious metals. We have also seen a decline in the U.S. stock markets for the past couple of days.”

Risk aversion has increased globally in recent days as fears of world recession resurfaced amid disappointing macro data in major economies.

Equity markets sank worldwide and U.S. Treasury yields dipped to 20-month lows as investor sentiment soured over growing global growth worries.

Fuelling tensions between Beijing and Washington, Chinese newspapers warned on Wednesday that Beijing was ready to use rare earth metals to strike back at the United States in their prolonged dispute.

This comes two days after U.S. President Donald Trump said Washington was not yet prepared to strike a deal.

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

“The dollar’s run will also hamper gold, but we could see that coming to an end, or at least a break, when the Federal Reserve admits the recent dip with inflation was not transitory. Rate cuts are priced in by the financial markets, the Fed just needs to capitulate.”

Lower U.S. interest rates put pressure on the dollar and bond yields, increasing the appeal of non-yielding bullion.

The dollar index, which has been competing with bullion as the investment of choice to hedge against the trade tensions, held near a one-week high.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, which is a gauge of investor interest in the metal, fell 0.2% to 737.34 tonnes on Tuesday.

Among other precious metals, silver gained 0.5% to $14.42 per ounce, while palladium jumped 0.9% to $1,348.15 per ounce.

Platinum fell 0.3% to $792.94 per ounce, after earlier falling to its lowest since Feb. 15 at $787.

Reuters

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya