Gold Surges to $1,500 Following Trade War Escalation

Written By
G. Dautovic
August 08,2019

The price of gold has reached $1,500 an ounce, the highest price since 2013. Amid trade-war escalation between the US and China, gold has gone up 6% in just four days - indicating that investors are seeking safe haven assets as they traditionally do in times of political and economic instability.

“That is the biggest factor because it introduces a whole new set of risks to the equation,” said Ryan Giannotto, director of research at GraniteShares. “What’s really playing into people’s fears is, does the depreciation of the yuan signify a larger threat to the economy?”

Ira Epstein, a strategist with Linn & Associates, shared a similar sentiment: “The collective mood is one where the trade war has taken on a different life. There’s a lot of fear out there.”

Adding fuel to the fire, German industrial figures for the second quarter of 2019 have proved much weaker than analysts expected, indicating that the largest economy in Europe may be heading for a retraction. The German Bund has sunk to a 10-year low, reaching negative 0.6%.

A trio of central banks in the Asia-Pacific region reacted by cutting interest rates on government bonds, pressuring yields lower throughout the world. This move by India, New Zealand, and Thailand indicates that the US-China trade war has hit the markets in Southeast Asia especially hard, as most of the countries in this region are deeply dependent on global supply chains.

“Although gold futures remain near-term overbought, momentum is decidedly higher,” said Tom Essaye, founder of The Sevens Report. “Fundamentally, the sharp downtrends in bond yields firmly support the bullish case for gold.”

The effects of recent tariffs and unsuccessful trade talks have highlighted growing fears that efforts to kick-start economies in Europe and Japan aren’t working as intended. Some investors are getting nervous because years of negative interest rates have not yet sparked inflation or sustained growth.

“The concern is that the global economy may have a much steeper decline than investors have been pricing in,” said Bart Melek, head of commodity strategy at TD Securities.

As banks and investors around the world keep amassing gold, the big winners on the stock market have become gold miners. The value of their shares has grown so much over the past three months that they are now among the best performers on the market. VanEck Vectors Gold Miners ETF leads the way with a 41% increase since May, followed by Barrick Gold, which gained almost as much, and Newmont Goldcorp, which has climbed 28% in the past three months.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

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