As trade tensions between the US and China continued to escalate, gold consolidated around 6-year high on Tuesday after it hit $1,474 an ounce earlier, supported by investors fleeing from risky assets and rushing into safe havens. After China allowed its yuan to weaken below 7 against US dollar yesterday, US Treasury Department stated that the US designated China a currency manipulator while adding it would engage with the IMF to eliminate competitive advantage in international trade created by China’s latest actions. In return, China Commerce Ministry said Chinese companies suspended buying agricultural products from the US and underlined it would not rule out imposing tariffs on US agricultural products imported after August 3.
Gold prices found support from increasing safe haven demand and hit $1,474 an ounce earlier as trade tensions between the US and China continued to escalate with measures taken by each side following additional US tariffs on Chinese goods due on September 1. Later, yellow metal consolidated around 6-year high on Tuesday as Chinese central bank set reference rate for yuan against US dollar below expectations.
As of 15:26 GMT+3, spot gold was trading at $1,465.02 an ounce while dollar index was at 97.61. US 10-year Treasury yield recovered slightly and was up to 1.75 after it fell as low as 1.67.
Vanguard Markets managing partner Stephen Innes said on Reuters that gold prices increased faster comparing to US dollar and stated there might be consolidation in the short term ahead of further increase in prices.
Trade dispute between the US and China persists after the US announced it would impose 10% tariffs on Chinese goods worth $300 billion as of September 1. US Treasury Department stated yesterday that the US designated China a currency manipulator and would engage the IMF to eliminate unfair competitive advantage in international trade created by China’s recent actions after China allowed its yuan to weaken below 7 against US dollar yesterday. In the statement, it said China took measures to devalue its currency recently and this was carried out to gain competitive advantage in international trade as Chinese central bank has “extensive experience” manipulating its currency and ready to do so on an ongoing basis. This is the first time that the US designated a trade partner a currency manipulator since 1994 and it raised concerns that there might be more sanctions on China.
Chinese central bank set its reference rate for yuan against US dollar below expectations at 6.9683 which is the first time that the reference rate was set above 6.9 since December. Yuan/USD passed 7 and reached 7.11 yesterday which caused concerns that China would use its currency as a tool in trade war with the US and it caused sea of red in global markets yesterday. Even though China signalled using its currency as a tool in trade war, weaker yuan causes concerns for China as well since weakening yuan leads to investment outflow alongside with weighing on other Asian currencies which risks China’s competitive advantage in international trade. Moreover, it could also weigh on already slowing global manufacturing sector as China’s already competitive manufacturing would be even more competitive and harm other manufacturers in other countries.
In the meantime, Chinese Trade Ministry stated on Tuesday that China would suspend purchasing US agricultural products while adding it would not rule out imposing tariffs on goods imported after August 3 following US decision to impose additional tariffs. In the statement, it also said the additional tariff would severely damage conditions agreed on between two countries’ leaders at G20.