While trade talks between the US and China ended without a deal, gold weakened on Monday after having weekly gain last week. Uncertainty over trade war rose after US President Donald Trump increased tariffs on Chinese imports worth $200 billion, as safe haven demand is mostly met by Japanese yen and US Treasury notes. Trump said China should act now or deal would be worse for them if negotiations continued in his second presidential term. In the meantime, White House economic advisor Larry Kudlow said President Trump and Chinese leader Xi Jinping would likely meet at G20 in Japan.
Gold prices edged down on Monday following trade talks ending without a deal last week as US President Donald Trump increased tariffs on Chinese imports worth $200 billion to 25% from 10%.
As of 15:14 GMT+3, spot gold was trading at $1,286.04 while dollar index was steady at 97.29. US 10-year Treasury yield was down to 2.416.
While gold demand is seen decreasing possibly due to Chinese renminbi weakening against dollar amid increasing trade tensions, investor’s safe haven demand is being met by Japanese yen and US Treasury notes.
President Trump said at the weekend that China was waiting for 2020 elections and hoping Democrats to win so that they could renegotiate the trade deal with them while adding it would not happen and warned China to act now which otherwise would face worse deal terms if negotiations were to continue in his second term in the office.
As Trump also said he would impose 25% tariff on remaining Chinese goods worth $325 billion, it was claimed that he gave China one month to avoid further tariffs and reach a trade deal or face consequences. China’s Vice Premier Liu He said earlier that tariffs would not solve any problem while underlining they would take necessary counter measures in case of tariff increase. Given that, China announced today that tariffs would increase to 25% on American imports worth $60 billion as of June 1.
In the meantime, White House economic advisor Larry Kudlow said on Sunday that President Trump and Chinese leader Xi Jinping would likely come together at the end of June at G20 in Japan. Kudlow said China reneged on its commitments which precipitated Donald Trump’s decision to increase tariffs while noting trade talks would continue. Kudlow also said tariff increase would hurt both sides while adding decreasing exports would harm Chinese GDP significantly but the effect to US economy would be limited since US economy was “in terrific shape.”
Underlining a possible change in doing business, David Weinstein, an economist from Columbia University, said on The New York Times that tariff revenue would likely decrease due to American companies decreasing their imports from China because of increasing costs while adding there would be changes in supply chains and companies would head to importing from low cost countries like Vietnam and Malaysia, which would likely hurt Chinese economy.