Gold futures are holding steady shortly before the regular session opening on Friday. Despite the heightened volatility in the global equity markets, the price action in gold this week has been relatively calm although we detect a slight bias to the upside. The market is also in a position to finish higher for the week.
At 11:47 GMT, June Comex gold futures are trading $1286.70, up $1.60 or +0.12%.
The price action suggests traders are still trying to figure out gold’s role during the renewed tensions between the United States and China. It is a safe-haven asset? Is it an investment? It seems to be competing with the truly safe-haven Japanese Yen and Treasurys for investor dollars, but due to liquidity issues, it hasn’t been that popular this week. Nonetheless, there seems to be an underlying bid, which is helping to underpin prices this week.
“This evening, (United States Trade Representative Robert Lighthizer) and (Treasury Secretary Steven Mnuchin) met with President Trump to discuss the ongoing trade negotiations with China. The Ambassador and Secretary then had a working dinner with Vice Premier Liu He, and agreed to continue discussions tomorrow morning at USTR,” White House deputy press secretary Judd Deere said in a statement Thursday evening.
At 04:01 GMT, the U.S. increased Chinese tariffs, from 10% to 20%, on $200 billion of Chinese products. China’s Commerce Ministry said immediately after the midnight deadline for the tariff hike that it would retaliate against the American move. This event didn’t have much of an effect on gold prices since it was probably priced into the market.
Moving forward, traders are hopeful the U.S. and China would be able to resolve some of the major issues surrounding the trade agreement. Trade talks are set to continue on Friday despite the tariff increase.
June Comex gold futures may be underpinned throughout the session on Friday, but prices may not move much if money leaving the stock market continues to flow into the Japanese Yen and U.S. Treasurys for protection.
There’s probably a number out there that will bring more hedgers into gold for safety, but that’s not known at this time. It could be a 5% decline in stocks, 10% or even 20%. In other words, based on this week’s price action, it may take much more than a short-term correction in the stock market to truly increase gold’s appeal as a safe-haven asset.