Gold prices rose on Wednesday, holding above the $1,300-an-ounce level for a second consecutive session as the dollar deepened its decline when trade data revealed a narrowed U.S. deficit.
Investors continued to eye trade tensions, however, ahead of a meeting later this week of the Group of Seven leading industrialized nations.
August gold GCQ8, +0.15% was up $1.30, or 0.1%, to $1,303.50 an ounce after posting a gain of 0.4% Tuesday.
G-7 nations will hold talks in Canada on Friday and Saturday, where tariffs and trade are likely to be discussed. This weekend’s rebuke by G-7 finance ministers of the Trump administration’s trade tariffs could add some stress to the gathering.
“Although global trade fears remain a dominant market theme, the yellow metal clearly needs a fresh catalyst to accelerate the flight to safety,” said Lukman Otunuga, research analyst at FXTM, in a note. “This much-needed catalyst could come in the form of [U.S. President] Donald Trump if he creates chaos and uncertainty during the summit.”
Investors may have gotten signs of a thaw after Treasury Secretary Steven Mnuchin reportedly urged President Donald Trump to exempt Canada from metals tariffs at a meeting Tuesday. That adds to a report Wednesday that China had offered to buy some $70 billion of U.S. goods to get the Trump administration to cool its tariff threats.
“Global trade war is the only factor providing the support for the gold price,” said Naeem Aslam, analyst with Think Markets. “Retaliation was the very act which traders had in their mind, a direct consequence of Trump’s action.”
Mexico revealed which U.S. products it is targeting for import tariffs—around $3 billion for goods including apples and bourbon—in retaliation for U.S. duties on Mexican steel and aluminum.
Read: Here’s what steel and aluminum tariffs on U.S. allies mean for the metals market
Meanwhile, data Wednesday showed the U.S. deficit shrank 2.1% in April — before the Trump tariffs took effect — and tumbled to a seven-month low. But the gap is still on track to widen in 2018 to the highest level in a decade.
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“The other aspect where the gold price would see some impact is the upcoming Fed meeting, during which it is expected that the Fed would hike the rate again,” Aslam said. “Strength in the dollar index could push the gold price back toward the $1,280 mark.”
The U.S. Federal Reserve is expected to release its monetary policy statement on June 13.
Rising real interest rates impact the opportunity costs of holding gold because the metal provides no yield. It also entices investors to rotate into riskier assets like stocks, which were headed higher Wednesday. Higher rates may also boost the value of the dollar, which usually moves in the opposite direction of the gold price.
On Wednesday, the ICE U.S. Dollar Index DXY, -0.33% fell 0.3% at 93.59, trading around 0.4% lower week to date.
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In other metals trading, July silver SIN8, +1.28% jumped 1% to $16.71 an ounce.
July copper HGN8, +1.75% traded at $3.253 a pound, up 1%. July platinum PLN8, +0.70% rose 0.6% to $906.30 an ounce, while September palladium PAU8, +2.93% gained 2.2% to $1,007.10 an ounce.
Among exchange-traded funds, the SPDR Gold Shares GLD, +0.20% was steady, while the iShares Silver Trust SLV, +1.41% jumped 1.2%, and the VanEck Vectors Gold Miners ETF GDX, +0.22% moved up 0.1%.