Gold starts the week edging up following US President Donald Trump’s threat to increase current tariffs and impose new tariffs to remaining Chinese goods. On Sunday, as Trump said he would increase current tariffs to 25% from 10% and impose 25% tariffs on remaining products, volatility in global markets increased and equities opened the week going down, especially in Shanghai. On the other hand, it was claimed that Chinese officials, who were expected to go to the US to resume trade talks this week, were considering cancelling the visit following Trump’s statements. In the meantime, China’s central bank (PBoC) announced it would decrease reserve requirement ratios for small and medium sized banks to continue stimulating Chinese economy.
Gold prices increased on Monday due to rising geopolitical risks and fading risk sentiment following US President Donald Trump’s threat to increase current tariffs on Chinese goods and impose new tariffs to remaining Chinese imports. While Asian equities lost value dramatically on Monday, global risk sentiment is expected to fade further.
As of 15:05 GMT+3, spot gold was trading at $1,281.04 an ounce while dollar index was at 97.56. US 10-year Treasury yield was down to 2.485.
In Asia, Shanghai Composite decreased dramatically by 5.58% while Hang Seng was down to 2.99%. European markets were following the downtrend as well.
On Sunday, US President Donald Trump said on Twitter that he would increase tariffs to 25% from 10% on Chinese products worth of $200 billion as of Friday. Moreover, while stating his discomfort on slow progress in trade talks between the US and China, Trump also announced he would impose 25% tariffs on remaining Chinese imports very soon.
White House economic advisor Larry Kudlow said this was a warning to Chinese officials and while reminding of previously postponed tariff increases, he said this would not last forever.
It was stated that President Trump’s threat was due to Chinese side being disposed to step back from previous promises on possible trade deal as well as no decent progress being made in significant issues like technology transfer and protection of intellectual property rights and there was a risk of trade talks coming to an end without a deal.
In response to this, it was claimed that Chinese side was considering calling off the visit to Washington where Chinese officials were expected to resume trade talks. After negotiations in Beijing last week, this week’s meeting in Washington was expected most likely to be the last round of trade talks before reaching a final deal, however, uncertainty around trade talks is now expected to remain further if Chinese side decides to cancel the meeting. Trump’s statement was also claimed to be a warning to Chinese Vice Premier Liu He not to come to Washington with “empty offers”, though.
In the meantime, China’s central bank (PBoC) keeps stimulating Chinese economy which showed better than expected growth performance in the first quarter. PBoC announced on Monday that it would decrease reserve requirement ratios for small and medium sized banks. With this new regulation that will take place as of May 15, reserve requirement ratios will decrease to 8% from 11.5% and more than $40 billion will be injected to the economy to be used for providing loans to micro and small firms.