Saxo Bank analyst noted that fears of retaliation from other countries stand to significantly increase gold’s appeal.
Last Thursday, President Donald Trump finally ushered in higher tariffs on aluminum and steel imports, which are set to affect all exporting nations besides Canada and Mexico.
An article on Newsmax wrote that the move brought back fears of a trade war which had an immediate effect on the markets, pushing the recovering dollar down and promoting haven assets like bullion. The weakening of the greenback ultimately made dollar-denominated gold more attractive to foreign investors.
Saxo Bank analyst Ole Hansen noted that fears of retaliation from other countries stand to significantly increase gold’s appeal. Hansen said that trade wars bring the possibility of limited economic growth and higher inflation, sparking a potential flight to safety by investors. He believes worries of higher tariffs harming U.S. jobs and the stock market could further strengthen interest in gold.
The tariffs, which increase the cost of exporting steel to the U.S. by 25% and aluminum by 10%, will go live in two weeks says Newsmax. Concerns over retaliation aren’t unfounded, as the European Union already warned that it would strike back with a 25% tariff on various American goods, ranging from consumer to agricultural products.
The article notes that Chinese officials showed a similar attitude, confirming that U.S. limits on Chinese exports would be matched by China’s customs. Although Trump exempted Canada and Mexico, many feel that the two countries could face tariffs as well should the North American Free Trade Agreement revamp backfire.
While gold recently trended lower due to hawkish statements from the Fed, the article writes that recent price movement showed that concerns over protectionism eclipsed the possibility of multiple rate hikes this year, the latter being seen as negative for gold.
“If a trade war becomes a reality it could push inflation up and growth down and that should ease the aggressiveness of the Fed. That’s why it has become the focus (of the gold market),” said Hansen.
Gold’s recent trading pattern was also a decidedly positive one, as the metal held above its 100-day moving average at $1,300. The bounce from this level has major technical importance, as it is considered a key psychological level.
Price action from funds has likewise supported gold prices in recent weeks. Reuters data shows that funds have increased their bullion holdings by 17 tons, or 1%, since February. According to Commerzbank analysts, the sizeable expansion comes from investors who viewed gold’s recent price dip as a buying opportunity.