Gold holds close to one-month high it recently hit, finding support from rising trade tensions due to mutual tariff increases between the US and China. As risk sentiment tries to recover due to calmer statements from two sides on trade relations between the US and China, US President Donald Trump said they were having “a little squabble” with China and added trade talks did not collapse. Although it is a low possibility, it was claimed that China could dump its massive pile of Treasury bonds to support its currency which hit the lowest against dollar since December due to increasing trade tensions. In the meantime, Chinese industrial production and retail sales growth decreased in April while in Europe, Eurozone economic growth accelerated and German economy recovered in the first quarter as expected.
While trade tensions increased following mutual tariff increases between the US and China, gold prices held firm close to one-month high on Tuesday, finding support from increasing safe haven demand.
As of 15:56 GMT+3, spot gold was trading at $1,300.50 while dollar index edged up to 97.67. US 10-year Treasury yield was down to 2.368.
Phillip Futures analysts said in a note that trade tensions moderated since two sides stated their willingness to solve their trade problems while adding gold prices would be supported in the short term due to investors being precautious.
US President Donald Trump said on Tuesday that they were having “a little squabble” with China and trade talks did not collapse while adding talks would continue. Despite Trump’s calmer statements, there is still a risk that US could impose 25% tariffs to Chinese products worth $300 billion possibly depending on the outcome of the meeting between Trump and Chinese leader Xi Jinping at the end of June at G20 summit in Japan.
It was claimed that China could dump its massive pile of US Treasury bonds to stop its currency from losing its value due to rising trade tensions. On the one hand, while lower yuan, which hit the lowest since December is good for Chinese exports, it could lead to massive capital outflow from China if yuan continues to weaken further. On the other hand, China could sell its US Treasury bonds worth $1.1 trillion which would likely lead to a sharp rise in interest rates and cause damage to US economy. However it was claimed that this could happen only if yuan depreciates further below psychological level of 7 against dollar since China did it before in 2016 and sold roughly 15% of its US Treasury bonds to supports its depreciating currency. While there is no such thing happening yet, 4% decrease in China’s US Treasury bonds in the last 12 months is seen not so significant.
In the meantime, Chinese retail sales increased by 7.2% in April, which is the weakest since May 2003, while industrial production rose below expectations by 5.4% in April, according to data released today. It was stated that weakness in global demand as well as rising trade tensions increased uncertainty and Beijing would likely use more stimulus to support Chinese economy.
In Europe, data showed today that German economy recovered from recent weakness and grew by 0.4% in the first quarter as expected while it was stated economic outlook was still cloudy. Germany Economy Minister Peter Altmaier said on Reuters that this was “first ray of hope” for German economy following two quarters of no expansion while adding the international trade dispute was still unresolved and they had to do anything to find a solution to enable free trade. By finding support from Germany as well as Italy, which recovered from recession by growing 0.2% in the first quarter, Eurozone economic growth accelerated in the first quarter and grew by 0.4% quarterly and 1.2% annually.