Price of Gold Fundamental Daily Forecast – Investors Betting on Escalation of US-China Tensions
Gold futures are trading higher on Monday shortly before the regular session opening as buyers extend the rally set in motion on Friday. Rising tensions between the United States and China over the coronavirus’ origin is being credited in the news for bolstering the bullion’s safe-have appeal, but President Trump’s threat of new tariffs on China can share equally in the blame.
Furthermore, it’s not safe haven buying driving the price action, it’s the thought that another prolonged trade war would further cripple the global economy, forcing governments to increase fiscal stimulus and central banks to continue to move interest rates toward zero or even into negative territory.
At 11:02 GMT, June Comex gold is trading $1714.10, up $13.20 or +0.78%.
Rising Tensions between the United States and China
U.S. Secretary of State Mike Pompeo on Sunday said there was “a significant amount of evidence” that the coronavirus emerged from a Chinese laboratory, following President Donald Trump’s remarks on Friday that tariffs on China were “certainly an option” as he considers ways to retaliate for the outbreak. According to reports, the Trump administration is currently working out the details of new tariffs.
Trump also said on Sunday that he believed that a “mistake” in China was the cause of spreading coronavirus pandemic, though he did not present any evidence for the claim. The nation’s top spy agency said Thursday that it had determined that the virus was not man made but was still investigating whether it was caused by “an accident at a laboratory in Wuhan.”
The Associated Press additionally reported that U.S. intelligence documents accused China of concealing the severity of the coronavirus outbreak to hoard medical supplies.
Gold doesn’t pay interest or a dividend, but paying zero percent is still better than paying negative interest. Longer-term, this is what is making gold a more attractive asset.
What could be putting a lid on gold prices is demand for the U.S. Dollar and Japanese Yen as safe-haven assets. U.S. Treasurys also seem to be a more attractive alternative to hold gold.
Furthermore, there is fear that another steep plunge in the stock market could force gold investors to sell positions in order to cover losses and margin calls. In this case, I guess you can call gold a safe-haven if it was bought for the purpose of converting to cash when U.S. Dollars were scarce.