Gold price surge expected as Asia stocks decline after China reports weak trade data

Last updated:
By Keith Skipper, CC BY-SA 2.0

Stocks in China and Hong Kong declined on Monday following significantly weaker than expected Chinese trade data released over the weekend while gold prices rose as investors sought safety in the precious metal.

The Hang Seng Index dropped to 26,298.3, a decline of 1. 4 percent, while the Shanghai Composite Index fell 0.7 percent to 2,535.77.

Spot gold rose from $1,291.39 per ounce to $1,292.23 by the end of Monday, registering a 0.3 percent rise. Meanwhile, gold futures stabilized at $1,291.30 per ounce.

Although gold still has not shown any signs of breaking through to the $1,300 per ounce valuation, analysts maintain that it may only be a matter of time as the new year ushered in a US government shutdown, weaker Chinese trade and other signs of political and economic uncertainty.

Triggered by trade data

Chinese trade data for November came significantly below expectations over the weekend. After shrugging off higher U.S. tariffs and surging for most of 2018, Chinese exports took an unexpected turn in December, declining 4.4% from a year earlier, according to data released on Monday.

Exports to the U.S. fell 3.5% in December, marking the first decline since October 2016. Shipments to Hong Kong declined by 26.0% year on year in December, while exports to Taiwan dropped 1.7% and those to Japan slipped 1.0%, according to Panjiva data, suggesting China’s economic challenges extend beyond the U.S. trade war.

In an interview with the South China Morning Post, Gordon Tsi Luen-on, the managing director of investment consultant firm Hantec Pacific, admitted the severe consequences unleashed by the release of the trade data and its disappointing results. He said, “We are seeing the impact of US-China trade tensions finally reflected in China’s trade data. We didn’t feel much of the impact during the early stage because trade data was still pretty good back then. Now the data suddenly plunged so much and the market has turned more pessimistic.”

Global repercussions

What makes the repercussions more worrisome is its domino effect on other stock markets around the world. The whiplash felt from China seems to affect all major global financial centers in the United States, Asia, and Europe.

The Stoxx 600, which trades in European stocks, felt the aftermath on Monday, tumbling by 0.6 percent. One sector that experienced the brunt was its technology sector. Asia proved to be equally vulnerable, with price of shares in the markets of  Hong Kong, Singapore, and South Korea experiencing a significant drop. Prior to the release of the trade data, the U.S. stock market was facing grim reservations from its investors who were apprehensive of a possible government shutdown.

Fears of a global economic freeze are already on the speculation board, as economists, analysts, and investors carefully keep a keen eye on the brewing conflict between China and the U.S.

One sector that may profit under this scenario is gold. Organizations like the World Gold Council and Goldman Sachs maintain a bullish position on gold through 2019 as it remains the most favored haven against unpredictable, systemic economic shocks. Goldman Sachs predicted that its value will reach $1,425 per ounce, a peak it last climbed to in 2013.