Gold Faces A New Trade Conflict, Banks Accumulate The Metal

Gold closed the week with losses despite the small bounce on Friday. Watch out EU-US trade conflict on the Monday open.
Mauricio Carrillo
Gold Faces A New Trade Conflict, Banks Accumulate The Metal
Gold Faces A New Trade Conflict, Banks Accumulate The Metal

Gold closed the week negatively despite a small gain on Thursday as the metal found support just above the 1,270 level. Optimism about the global economy and talks between the US and China pushed XAU/USD down the whole week.

US-EU trade conflict

However, a new trade conflict between the United States and the European Union is emerging following the World Trade Organization rulings against Boeing and Airbus. According to the WTO, both companies have been receiving illegal public support.

First, the US threatened the EU to impose sanctions, and now the European Commission is doing the same.

According to a report from CNBC, “helicopters, handbags and hazelnuts are among the U.S. goods facing EU tariffs after the European bloc hit back against U.S. subsidies of Boeing aircraft.”

Tariff charges from the European Union would be worth 20 billion dollars. Previously, Washington said the White House was considering tariffs on approximately 11 billion dollar worth of EU goods.

Central banks accumulating gold

According to Commerzbank citing a report from the International Monetary Fund, central banks are still accumulating gold to their reserves with Turkey and Kazakhstan with 17 tonnes and five tonnes being the biggest buyers.

The bank highlighted that “last week already saw the Chinese central bank report further gold purchases.” Russia is also likely to have purchased more gold in March, according to the note.

On the other side, Argentina seems to have reduced gold reserves by seven tonnes.

Gold posts its fourth negative week in a row

XAUUSD daily chart gold April 19

Gold traded positive on Thursday, but it wasn’t enough to change the fate of the metal this week. Gold is now testing critical support just above 1,270.

XAU/USD is closing its fourth negative week in a row, and since its peak at 1,325 on March 25, the metal has lost around 4.0% to 1,270. Technical conditions remain weak and the scoop if for more declines in the days ahead.

According to George Gero, managing director at RBC Wealth Management, gold was up on Thursday due to “short-covering for the weekend and on weak manufacturing news from the eurozone.”

FX Empire reported short covering and EU news as the reason for an early positive gold on Thursday. Now it materialized.

Gero also affirmed that gold should not be holding recovery “because the dollar index is over the 97 mark and retail sales were uninflationary.”

However, the US-EU trade conflict has opened a new way for risk aversion. We will see it on Monday when markets return and investors will have to deal with the news.

TDS sees bullish potential on Gold

TD Securities sees a long opportunity in gold as they see an increased risk for nonconventional measures from central banks.

“Growing risks that central banks may again need to follow a nonconventional monetary policy path when the economy heads south.”

The firm states that “private-asset allocations would follow the official sector in increasing their allocations to gold and precious metals.”

“With many in the market dismayed and pondering what it will take to move gold past $1,350/oz, if an uber-dovish Fed can’t do the job, we see interest growing from both the official sector and money managers in the cards,” TDS said in a note.

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