Gold futures rallied on Friday after China announced a round of retaliatory tariffs against U.S. products, prompting the precious metal to move up for the week and post a fourth consecutive weekly climb.
China said it was preparing to raise tariffs in two batches on $75 billion in U.S. imports on Sept. 1 and Dec. 15, which would coincide with the dates that Washington is slated to increase import duties on some $300 billion of Beijing goods. President Donald Trump responded with a series of tweets, in which he said he “hereby ordered” U.S. companies to begin looking for alternatives to China and said further measures would be announced later.
Read: Escalation in U.S.-China trade war threatens global economy, poses Trump reelection risk
The escalating trade war “helps to play into placing more pressures on the [Federal Reserve] to be more accommodative and easy during the growing rise in trade wars in the coming months, so gold will benefit from this into next week,” Peter Spina, president and chief executive of GoldSeek.com, told MarketWatch.
Comments from Fed Chairman Jerome Powell at the Jackson Hole Wyoming, economic policy symposium, meanwhile, sounded “accommodative to easier monetary policies” going forward, and lower interest rates would be bullish for gold, said Spina. “When and how fast still seems unclear so the market may no respond too bullishly just yet.”
See: Powell says Fed ‘carefully watching developments’ and ‘will act as appropriate’
Also read: Trump asks whether Fed’s Powell ‘bigger enemy’ of U.S. than China’s Xi after Jackson Hole speech
Still, “it is becoming more clear that with the tariff/trade war escalation[ and] monetary devaluations globally with a global slowdown, they are being forced to be more accommodative going forward,” he said.
December gold GCZ19, +2.01% climbed by $29.10, or 1.9%, to settle at $1,537.60 an ounce, flipping its weekly performance away from a loss to a rise of 0.9%, based on last Friday’s settlement for the most-active contract, FactSet data show. The settlement was the highest since April 2013.
The apparent escalation of the tariff battle squelched risk appetite and overshadowed bullish comments from St. Louis Federal Reserve President James Bullard who said that further insurance cuts are needed to combat economic weakness outside of the U.S.
Read: Fed can handle recession, Bullard says, in MarketWatch interview
China news also drove benchmark bond rates, which compete with gold for haven demand, helping to support bullion buying. The 10-year U.S. Treasury note TMUBMUSD10Y, -5.66% was at 1.5115%, down 9.1 basis points. Bond prices rise as yields fall.
Chintan Karnani, chief market analyst at Insignia Consultants, told MarketWatch that yields could be a big catalyst for gold in this environment. “If bond yields [do] not rise and/or remains near zero, then gold prices will rise to $1,528 and $1,542,” he said.
A turn lower in equities and the dollar also helped buttress gold prices. The ICE U.S. Dollar Index DXY, -0.55%, a measure of the dollar against six major currencies, was down 0.5% as gold future settled Friday. A weaker dollar can boost demand for commodities priced in the currency.
Powell, meanwhile, in his speech at Jackson Hole, said he and his colleagues were trying to assess “this complex, turbulent picture” that has emerged in August, and that “our challenge now is to do what monetary policy can do to sustain the expansion”
The Fed lowered its benchmark rate to a range between 2% and 2.25% back in July and has another policy decision on Sept. 18, with market expectations running high that another quarter-of-percentage point cut will be delivered amid signs of weakness in the U.S. economy, a slide in bond rates and an inversion of the closely watched spread between the 10-year U.S. Treasury and the 2-year Treasury note TMUBMUSD02Y, -6.38%. An inversion of the yield-curve of that spread occurred earlier this week; the phenomenon has been an accurate predictor of recessions.
“Gold is likely to be most volatile during FOMC meetings and days (like today) when we receive a barrage of tweets from President [Donald] Trump and headlines concerning global trade,” said Matthew Miller, equity analyst at CFRA Research. “The news regarding China’s trade retaliation and [Trump’s] multiple tweets attacking the Federal Reserve are overshadowing” the Jackson Hole gathering, he said.
Among other metals, September silver SIU19, +2.35% rose 3.73 cents, or 2.2%, to $17.413 an ounce, tacking on around 1.7% from a week ago. September copper HGU19, -1.11% lost 2.75 cents, or 1.1%, to $2.53 a pound, down 2.5% for the week. October platinum PLV19, -0.07% shed $6.60, or 0.8%, to $855.30 an ounce, for a weekly rise of 0.5%, while September palladium PAU19, -1.93% settled at $1,454.30 an ounce, down $30.90, or 2.1% in Friday dealings, with prices still up about 0.9% from a week ago.
SPDR Gold Shares GLD, +1.92% was up 1.9% as gold futures settled, set for a weekly rise of 0.9%.