Gold is at a 12-month high, driven by the linked issues of the US-China trade war and expectations of further cuts in American interest rates.
It was 0.3% higher this morning at $1,461.85 a Troy ounce, against $1,404.90 a month ago, on 8 July.
Going back three months, bullion traded at $1,281.30 on 7 May and a year ago, on 7 August 2018, it was worth $1,215.40 an ounce.
Warning of “economic warfare”
Fans of the yellow metal may well be pleased by the fact that its 12-monthly low is nearly a year in the past, on 17 August 2018, when it touched $1,176.70. This suggests the momentum is with a rising gold price.
Interestingly, given that gold and the dollar act as rival safe-haven investments in times of trouble, bullion’s rise has not been accompanied by a particularly marked decline in the US currency. This morning, it was higher than a year ago, trading up 0.12% at €0.8935, against the €0.8622 seen on 7 August 2018.
As well as offering financial security at a time of general turbulence on the world scene, gold is benefiting specifically from current developments involving the US.
One is the escalating trade war between America and China, which has taken an extra twist in recent days with Washington accusing Beijing of manipulating the value of its currency, the renminbi.
China’s currency has fallen through a key support level of 7 to the dollar, which some see as an attempt by China to compensate for US tariffs on its goods by keeping the prices competitive in local currency terms.
That may be understandable, but the Financial Times quoted Eswar Prasad, an expert on Chinese finance at Cornell University, as suggesting that “the trade war is expanding into an all-out and open economic warfare between the two countries”.
Four factors move gold price
This is reason enough to support the gold price, but a second rationale for the surge in bullion comes from the expectation that slowing growth, not least as a result of the trade war, will prompt the US central bank to cut rates again.
Last month, the Fed and its chairman Jerome Powell ended a steady three-and-a-half-year process of raising rates to more normal, pre-crisis levels and reduced its target range for the key federal funds rate from 2.25%-2.5% to 2%-2.25%.
Mr Powell cited declining manufacturing output and weak global growth as having prompted the move. Cuts in US rates reduce the attractiveness of dollar-denominated assets for investors and burnish gold as an alternative.
The trade body, the World Gold Council, lists four key factors that move the price of gold, either up or down. One is the strength or weakness of currencies, chiefly but not exclusively the US dollar.
The second is “economic growth and market uncertainty”, taking in consumer confidence, income growth and inflation.
Third are “tactical flows”, reflecting the positions traders and investors have taken in the metal.
Finally comes the overall supply and demand picture, including mine production.