While dollar index rises due to increasing trade worries following US President Donald Trump stating yesterday that US was not ready to have a trade deal with China yet, gold falls on Tuesday after opening the week with slight increase. Expectations of a long lasting trade war is now on the horizon but Nomura chief US economist Lewis Alexander said in case of US imposing tariffs on all Chinese goods, this would increase inflation and hurt already slowing American economy. In the meantime, Bloomberg economists presented three different scenario regarding trade war and underlined the trade dispute between the US and China could cost the world economy $600 billion.
Stronger dollar due to increasing worries that trade war between the US and China could be long-lasting weighed on gold prices and yellow metal fell on Tuesday.
As of 15:16 GMT+3, spot gold was trading at $1,279.06 while dollar index was up to 97.74. US 10-year Treasury yield fell sharply to 2.294.
OANDA market analyst Jeffrey Halley said on Reuters that “price action in gold has been a little bit disappointing” despite trade dispute, Fed’s pause and volatility in global markets while adding there was currently nothing to undermine dollar’s strength.
Nomura chief US economist Lewis Alexander said on CNBC that if US was to impose 25% tariff to all Chinese goods, this would hurt the US economy which had been showing signs of slowdown in recent months. Alexander said it was evident that additional cost of imposed tariffs on Chinese goods was burdened by American importers and consumers on the contrary of what US President Donald Trump claimed, even if tariff burden can simply get passed on to anyone from Chinese producers to US consumers, technically. Alexander added, the biggest thing that would influence US growth and Fed’s decision was how trade dispute would affect business sentiment and investments while underlining that in case of imposing 25% tariff on all Chinese import, core inflation would increase by 0.5% in 12 months and thus Federal Reserve would have no reason to cut the rates.
In the meantime, Bloomberg analysts Dan Hanson and Tom Olrik presented three different scenario regarding trade war and forecasted its possible effects on the world economy. While economist expect trade war would affect the world economy at the peak level in 2021, they said growth would be cut by 0.2% in the US, 0.5% in China and 0.3% in the world economy if current tariffs persist, according to first scenario.
According to second scenario stating that US is assumed to impose 25% tariff on all Chinese imports, growth would be cut by 0.5% in the US, 0.8% in China and 0.5% in the world economy in 2021. In third scenario, economists added 10% fall in the global markets in addition to the second scenario and stated growth would be cut by 0.7% in the US, 0.9% in China and 0.6% in the world economy. Economists said the worst case scenario was expected to cost the world economy around $600 billion.