Markets wary of the war

Last week the yellow metal was all green over escalating tensions of the US China trade war. Early in the week, spot gold prices rose 1.1%, registering their best one-day percentage gain in nearly three months after China announced that it would impose retaliatory tariffs on a range of U.S. goods.
After Witnessing its biggest one day percentage loss in a month on Thursday, gold managed to stabilise at around $1286.27 an ounce.

Spot gold fell 0.8% on Thursday, its biggest one-day percentage decline in a month after risk sentiment improved.

Gold welcomed a series of key data, important numbers and crucial news over the week.

• The equities and dollar have boosted due to strong corporate earnings created pressure on gold as equities and dollar strengthened. A firm dollar, placed gold in the red marks. 
• Furthermore, U.S. stock indexes extended gains on upbeat earnings as well as robust economic data that underlined the strength of the domestic economy. Meanwhile, the dollar index hit a two-week high against a basket of currencies.
• The U.S. housing data showed home building increased more than expected in April, while unemployment benefits fell more than expected last week, pointing to sustained labor market strength that should underpin the economy.
• The pullback in risk aversion lifted treasury yields. The rise in yields underpinned the U.S. dollar.


Stronger dollar makes gold more expensive for holders of non-U.S. currency.
Meanwhile, Thursday’s fall in gold prices has worsened the technical picture for the metal. Gold is on its third negative trading day as it seesaws near $1276.50 ahead of the European open on Monday. Bullion traders were happy initially as reports concerning the geopolitical tensions between the US and Iran, coupled with the US-China trade pessimism was released.

Investors couldn’t take much leverage of the gains as markets alter shifted focus on Australia’s surprise election results and optimism surrounding the trade relationship between the US, Canada, and Mexico.

Continuing on last week’s sentiments, , Gold fell to a more than two-week low on Monday as investors preferred the safety of the dollar, with the currency underpinned by robust economic reports out of the United States, even as geopolitical risks and trade tensions persist.

Spot gold was steady at $1,277.86 an ounce during Monday’s trading session, having touched $1,273.22 for its lowest since May 3.
Some believe that the bullish trends have started hovering around gold. People have started diversifying their finance into equities and dollars. They are currently proving to be attractive modes of investments.

A strengthening dollar is creating pressure on gold, the dollar held strong over the following news-
• After strong U.S. housing data and a report pointing to lower unemployment helped the U.S. currency to mark its biggest weekly rise last week since early March.
• Renewed U.S.-China trade fears have also helped the dollar to mimic its trajectory from last year, when it was preferred to gold as a perceived safe-haven asset.
• Investment demand for gold failed to pick up. Even with geopolitical tensions, no safe-haven demand  emerged.

Gold will be an attractive safe-haven asset as rising trade tensions weaken the U.S. economy and drag down the U.S. dollar, according to a recent report from Morgan Stanley. U.S. President Donald Trump has until May 18 to decide whether he will impose a 25% tariff on car imports from the European Union. The deadline comes 90 days after the U.S. Commerce Department said in a study that auto imports pose a threat to American national security.

Apart from the current trade war there are some other factors that attract attention-

• Risk airing from the European Union economy
• Voting in the next crop of MEP’s
• OECD will probably downgrade its global economic outlook.
• The Fed might unnerve investors further by reiterating that hopes for a lifeline from monetary policy are almost certainly misplaced in the near term
• A speech from Chair Powell and minutes from May’s FOMC meeting will probably hammer home officials’ preference for a “wait-and-see” approach
•
Amongst all this, the trade war definitely acts as a wild card. Prices have proven to be responsive to the running commentary on negotiations from media outlets linked to the government in Beijing as well as US President Donald Trump’s Twitter account. Nonetheless any statement released from any side will run volatility waves into the market.

Trade War pushes gold prices high

Gold prices ended last week on a high note as prices rose on Friday over the escalating US China trade war. Gold posted a weekly rise as the United States raised tariffs on Chinese goods and increased fears of a global economic slowdown, with a weaker dollar also offering support to the precious metal.

On May 9, the US government announced that since May 10, 2019, the tariff rate imposed on the $200 billion list of goods imported from China has been increased from 10% to 25%.

The above measures by the United States have led to an escalation of Sino-US economic and trade frictions, contrary to the consensus between China and the United States on resolving trade differences through consultations, jeopardizing the interests of both sides and not meeting the general expectations of the international community.

The United States intensified a tariff war with China on Friday by hiking levies on $200 billion worth of Chinese goods amid talks to rescue a trade deal. U.S. President Donald Trump said on Friday he was in no hurry to sign a trade deal with China.
Uncertainty over the real impact on [the] U.S. economy and Chinese economy was driving gold prices higher.

Gold pieces rallied over the following-

• The levy of increased tariffs by the Trump government has increased the demand for safe haven assets like gold and bonds mainly because equities saw a sharp drop over the trade war. Rise in demand ultimately resulted in a rise in gold prices
• Another spill over effect of the trade war can be seen in the fact that the US Federal Reserved may be forced to cut interest rates which will further result in a rise in the yellow metal.
• Global anxiety has also seen an uptick as U.S. bombers arrived at a U.S. base in Qatar. The bombers have been sent to the Middle East to counter what Washington describes as threats from Iran.
• Bullion was also supported by a weaker dollar which fell after data showed a smaller-than-expected rise in the U.S. consumer price index last month.

Initially markets were expected that a trade deal will be struck between the two biggest economies of the world. However what happened over the weekends was much beyond market expectations.

A full-scale trade war between the US and China began. This war of words is closer than ever after Beijing hit back with retaliatory tariffs on Monday. The Chinese Yuan fell by more than 1%, prompting a selloff in copper, while gold jumped $11 to 1299 and Bitcoin hits $7400. USD fell across the board on reports that some Chinese scholars have mentioned Beijing taking the "nuclear option" -- selling US treasuries. Risk trades have been hit hard to start the week with safe haven assets surging.
After vowing over the weekend to "never surrender to external pressure", Beijing defied President Trump's demands that it not resort to retaliatory tariffs and announced plans to slap new levies on $60 billion in US goods.

• China Says to raise tariffs on  some US goods wef June 1
• China Says to raise tariffs on  $60B of U.S. goods
• China says to raise tariffs on  2493 U.S. goods to 25%
• China may stop purchasing US agricultural products :GLOBAL TIMES
• China may reduce Beoing orders: GLOBAL TIMES
• China additional tariffs do not include U.S. crude oil
• China raises tariff on US LNG to 25% w.e.f. June 1
• China to raise tariffs on import of  U.S. rare Earths to 25%


Here's a breakdown of how China will impose tariffs on 2,493 US goods. The new rates will take effect at the beginning of next month.
• 2,493 items to be subjected to 25% tariffs.
• 1,078 items to be subject to 20% of tariffs
• 974 items subject to 10% of tariffs
• 595 items continue to be levied at 5% tariffs


In further bad news for American farmers, China might stop purchasing agricultural products from the US, reduce its orders for Boeing planes and restrict service trade.
China's announcement of counter tariffs acted as a booster for gold prices and resulted in its rise. There have been talks in the market that the Peoples bank of China may start dumping Treasury’s. But will it also dump US stocks and real estate? Well now we get concrete reasons behind the piling of gold reserves by the biggest gold consumer of the world.