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James Hyerczyk
Stacks of gold bars

Gold is edging higher on Wednesday on renewed concerns over the progress of U.S.-China trade talks. The news is driving investors into so-called safe-haven gold, but we all know that the real safe-haven plays are U.S. Treasurys and Japanese Yen. Investors are actually buying gold because rising Treasurys are driving down yields. This is helping to make gold a more attractive investment.

At 10:48 GMT, December Comex gold is trading $1475.90, up $1.60 or +0.10%.

Some investors are also buying the U.S. Dollar as a hedge against a stock market sell-off, this could cap the rally in gold.

The catalysts behind the rally in gold are a report that said the U.S. and China had hit a snag in negotiations over tariff rollbacks, and President Trump’s threat to raise tariffs.

Upside Pressure Building

Optimism over a possible trade deal drove up demand for higher-risk assets, pressuring gold earlier in the week. The optimism was fueled after Chinese state media said over the weekend the United States and China had held “constructive” trade talks, days after White House economic adviser Larry Kudlow said they were getting close to a trade deal.

However, after reaching record highs this week, stocks are now trading lower, triggering a move into the safe-haven Treasurys and Yen. Gold is benefitting because yields are falling.

The rally in gold was first fueled after CNBC’s Eunice Yoon reported, citing a government source, that Chinese officials are pessimistic about the prospect of a U.S.-China trade deal. China is troubled by President Donald Trump saying recently the U.S. would not roll back tariffs as they thought both sides had agreed to do so in principle, Yoon reported.

The second wave of gold buying is being fueled by President Trump’s threat of higher tariffs on Chinese goods if that country does not make a deal on trade.

“If we don’t make a deal with China, I’ll just raise the tariffs even higher,” Trump said at a cabinet meeting.


Daily Forecast

U.S.-China trade concerns will be at the forefront for gold traders on Wednesday.

At 19:00 GMT, the focus may shift to the Fed minutes although I don’t think the minutes will contain any surprises that could move gold prices. Furthermore, Fed Chair Powell said a lot last week about the course of future policy. The minutes are likely to show that policymakers decided to pause future rate cuts because the economy is in a good position. If anything, this could put a lid on gold prices.

Additionally, it goes without saying, but I’m going to say it anyway. Gold prices will soar if the U.S. and China decide to walk away from this round of trade talks without a deal.

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