Tuesday, the U.S. government announced that it would raise tariff to 25% on $16 billion worth of good from China. China quickly followed suit and Wednesday also raised tariffs to 25% on $16 billion worth of U.S. imports.
The gold market quickly saw all of its session gains erased following the latest trade rhetoric and was trading in the negative range on the day as investors moved back into the safety of the U.S. dollar.
Initially, the dollar tumbled a quarter of a percent against a basket of its peers on Tuesday, its biggest drop in a week, as expectations grew that the dollar’s recent rally on the back of escalating trade tensions may be coming to an end.
However, some analysts view trade tensions supporting the dollar as the United States economy is better placed to handle protectionism than emerging markets, and as tariffs may narrow the U.S. trade deficit.
Gold continued with its struggle to register any meaningful recovery and remains within striking distance of over 17-month lows, set last Friday.
The precious metal continued with its range-bound price action within a broader trading range, held over the past one-week or so. Expectations about gradual Fed rate hike path had been one of the key factors keeping a lid on any bounce back.
In absence of any major market moving US economic releases, the commodity seems more likely to continue with its subdued price action. Investors now look forward to this week’s important US macro data – July consumer inflation figures, which might influence Fed rate hike expectations and eventually provide some fresh directional impetus.
Currently there is a lot of uncertainty prevailing in the market regarding rate hike, trade wars and euro zone crisis. So it’s quite difficult to say which was will gold move. If there are key factors that will pull down gold prices, there are equally strong factors that can influence gold prices positively in the near term. So we just have to wait for something concrete to happen.