Gold prices continued to rise on Monday by finding support from increasing global growth worries due to rising trade tensions between the US and China as well as US widening its trade war geographically by declaring tariffs on Mexican goods. Morgan Stanley said in a note on Sunday that impacts of a long-lasting trade dispute were overlooked and warned that the US following through with 25% tariff on remaining Chinese goods would lead the world economy into a recession in less than a year. Moreover, Goldman Sachs said trade dispute against China and Mexico would likely escalate further. In the meantime, Chinese Cabinet spokesman’s office blamed US side for stepping back from the agreement while adding China would not back down on “major issues of principle.” In addition to this, it was claimed that China kept its soybean imports from the US on hold following escalated trade tensions.
While worries over global economic growth increased due to escalating trade war and US widening geographic area of its trade war by imposing tariffs on Mexican goods, gold prices kept its upside momentum on Monday after having first monthly gain in four last week.
As of 13:56 GMT+3, spot gold was trading at $1,316.50 an ounce while dollar index was down to 97.66. US 10-year Treasury yield also decreased to 2.10.
OANDA senior market analyst Edward Moya said on Reuters that gold finally behaved like a safe haven last week while adding gold prices increased due to escalated trade war sending worrying signals regarding global economic growth.
Morgan Stanley said in a note on Sunday that investors were thinking that trade war could last longer but its impacts on global economic outlook were overlooked. Bank’s chief economist Chetan Ahya said policymakers would take precautions to stem the effects of a trade war but a downturn was inevitable considering that the new policies would take time to affect real economy. Ahya also said if the US followed through with 25% tariff on all Chinese goods, then the world economy would be led to a recession in three quarters.
Moreover, Goldman Sachs said trade tensions with China and Mexico would escalate even further. Goldman Sachs economists said the rhetoric between counties was intensified and increased the possibility of the US going for a full-blown 25% tariff on all Chinese goods to 60% from 40% while seeing 70% possibility that 5% tariff on Mexican goods would take place as of June 10.
China released a report on Sunday and blamed US side for breaking the trade talks. Cabinet spokesman’s office said China would honor its commitments it made in the trade talks while stating the US stepped back three times and introduced other conditions beyond what was agreed on. Report also said a country’s sovereignty and dignity should be respected while possible agreement should be based on equality and mutual benefits. Some said this report should be seen as a representative of China leaving an open door to US instead of escalating the trade war.
In the meantime, it was claimed that China kept on hold its soybean imports from the US following escalation in the trade war. According to Bloomberg, China imported 13 million tons of soybean and ordered 7 million tons more since the trade truce in December but there would be no more orders. While it was stated there were signs that China was redirecting its soybean imports to Brazil, this was evaluated as an open strike against US President Donald Trump since he was hugely supported by soybean producers in 2016 elections.