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Gold fails to cash in on trade war, but that may be changing

12:59, 15 May 2019

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For an asset whose fans claim it as a source of clarity and strength, gold is proving particularly hard to read at the moment.

Looked at one way, the pattern of recent months has been of a steady price decline.

The low point of the last 12 months was back in August 2018, while the high point was as recently as February.

Tit-for-tat trade dispute

True, the picture since February has been discouraging for gold bulls. Declines have been followed by partial recovery, but most low points have been lower than the previous one, and most peaks have been lower still.

All this is happening despite the problems of the dollar, traditionally gold’s big rival as a safe-haven asset, as tit-for-tat tariffs are imposed in the US-China trade dispute.

Yesterday, gold was down 0.19% at $1,282.95 a Troy ounce, and today was up by a more encouraging 1.14% at $1,297.60. A month ago, on 15 April, it traded at $1,286.75, and three months ago, on 14 February, it was worth $1,305.65.

Go back 12 months, and the price stood at $1,320.70 on 15 May 2018.

The year’s low was seen on 17 August, at $1,176.70, and the high on 20 February, at $1,345.75.

As a result, the price chart for the past year resembles something like a saucepan, with a deep trough between mid-August and late November, followed by a recovery and, since February, by gradually declining sideways movements that look a bit like a handle.

The roots of the US-China trade dispute are obscure to most people, but the fear of a global recession as a result of trade tensions is very real. Protectionist measures between the world’s two largest economies can only hamper world growth.

Big rise in physical gold sales

Worse, they come at a time when many observers believe a recession of some sort is overdue, and has been fended off until now only by the huge amounts of money pumped into the system through central bank “quantitative easing”.

US President Donald Trump tweeted earlier this week “that China will be hurt very badly” if it does not make a deal “because companies will be forced to leave China for other countries.” Mr Trump added that it was “too expensive to buy in China”, stating: “You had a great deal, almost completed, and you backed out!”

But although gold prices have yet fully to benefit from the fall-out from the trade dispute, that may be about to change, according to The Pure Gold Company – a London-based bullion investment firm.

It reported a 234% increase in the volume of physical gold bars and coins purchased on Monday compared with the average for the year so far, spurred by fears that the deepening trade war between the USA and China could see equities and currencies continue to fall considerably”.

Josh Saul, chief executive, said that “73% of clients investing in gold on Monday were financial professionals (from the banking and financial services sectors)”. He added: “Their key concern is the effect of China’s retaliation to President Trump’s imposition of tariff hikes. This could include China dumping US treasuries [Treasury bills], a decline in the dollar, and a rise in the value of gold."

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