While investors’ safe haven demand is met by dollar and bonds after risk sentiment decreased following increasing worries over global economic growth due to escalating trade war between the US and China, gold prices fell on Thursday. As no signs of trade tensions ending soon between two biggest economies startle, Chinese Vice Foreign Minister Zhang Hanhui said that deliberately provoking trade dispute was naked economic terror while adding China opposed trade war but was not afraid of it. Founder of the largest hedge fund Ray Dalio said in his post on Wednesday that the dispute between the US and China was more than trade war while warning the US might be escalating tensions to dangerous levels. In the meantime, Morgan Stanley CEO James Gorman mentioned of inverted yield curves and said this was concerning but any recession would be “shallow and short” given strong US economic fundamentals.
Alongside with escalating trade war, inverted short and long term yield curves in the US increased worries over the health of the global economy while gold prices fell on Thursday after investors headed towards dollar and bonds as safe havens.
As of 15:10 GMT+3, spot gold was trading at $1,279.14 an ounce while dollar index held firm at 98.14. US 10-year Treasury yield recovered slightly and was up to 2.260.
OCBC Bank economist Howie Lee said on Reuters that it seemed like investors preferred US Treasuries which was evident from inverting yield curves while adding strong dollar likely limited gold consumption from China and Indıa.
While worries on trade war to be long-lasting increased, Chinese Vice Foreign Minister Zhang Hanhui said on Thursday that deliberately provoking trade dispute was “naked economic terror”. Zhang said China opposed trade war but was not afraid of it while adding trade war would hurt everyone and would have significant negative impacts on global economic development.
Founder of Bridgewater Associates LP Ray Dalio said in his post published on Wednesday that trade dispute between the US and China was more than a trade war while warning the US might be escalating the tensions to dangerous levels. Dalio said the dispute between two countries was due to ideological differences while adding both sides were moving towards being less dependent on each other and uncertainty which would be created by this would be harmful to countries. Moreover, he pointed out the recent sanctions on Chinese tech company Huawei and said the US was weaponizing export controls and warned China could retaliate by shutting off the rare materials exports to US companies.
China accounted 81% of the whole world rare materials production in 2017 while 80% of US rare materials demand is supplied by China. Rare materials, which are used in wide range of products from consumer electronics to military equipments like jet engines, air defence systems and satellites, hasn’t been subject to imposed tariffs so far however it was stated that the US instructed legislations to encourage domestic supply.
In the meantime, Morgan Stanley CEO James Gorman mentioned of inverting short and long term yield curves in the US, which is seen as a sign of an upcoming recession, and said this was concerning but a possible recession would be “shallow and short” considering strong US economic fundamentals. Gorman also said markets already prices most of the effects of full-blown 25% tariff on all Chinese goods and added markets were fragile but sentiment could recover quickly in case of trade talks going back on the track.