Gold prices fell on Tuesday as investors sought safety in the U.S. dollar amid concerns of slowing global trade after the United States imposed a new round of tariffs on Chinese imports. U.S. President Donald Trump on Monday imposed 10 percent tariffs on about $200 billion worth of Chinese imports and warned of more tariffs if China retaliated. Although gold is presumed to be a safe-haven asset, the months-long trade rift between Washington and Beijing has prompted investors to buy U.S. dollars in the belief that the United States has less to lose from the dispute.
Gold is facing bearish headwinds from multiple directions such as the escalation of trade conflict and rising U.S. interest rates diminish demand for non-interest bearing bullion. It is likely to be a pretty tough environment for gold in the next couple of weeks as it battles these two fronts.
Sino-U.S Trade War Updates Hurt Precious Metals And Oil Market Alike
As of writing this article, Spot Gold XAUUSD is trading at $1197.46 an ounce down 0.33% on the day while US Gold futures GCcv1 is trading at $1201.60 an ounce down by 0.34% on the day. Bond traders are increasing bets on hopes that the Federal Reserve will raise U.S. short-term interest rates into 2019 as the jobs market tightens and with inflation is seen climbing above its 2% goal. USD denominated precious metals are highly sensitive to rising U.S. interest rates as it increases the opportunity cost of holding non-yielding metal while USD continues to grow strong. Meanwhile, Spot Silver XAGUSD is trading at $14.12 down by 0.39% on the day.
Oil markets fell on Tuesday as the latest escalation in the Sino-U.S. trade war clouded the outlook for crude demand from the two countries, which are the world’s top two oil consumers. The growing trade dispute has hurt trading sentiment. The impact on economic growth is slowly dripping in, which again hurts oil prices.
The tariffs are likely to limit economic activity in both China and the United States and that should lower oil demand growth as less fuel is consumed to move goods for trade. However, potential supply cuts caused by U.S. sanctions on Iran, the third-largest producer among the members of the Organization of the Petroleum Exporting Countries (OPEC), are providing some support for oil prices. On Monday, Russia’s Energy Minister Alexander Novak said that OPEC and non-OPEC members will discuss all possible supply scenarios when they meet this month in Algeria. This meet is looked forward to as next major high impact news for the Oil market. Spot Crude WTIUSD is trading at $68.83 down by 0.06% on the day.