Gold Surges To Over A Month high On global Cues

  • December 29, 2019 10:00 AM GMT
  • Team Kalkine
Gold Surges To Over A Month high On global Cues

Gold prices recently on 23 December 2019 hit a six-week high on account of lingering concerns of a weakened global economic outlook in the backdrop of a Chinese slowdown, Brexit in Europe and Sino-American trade war situation. The price development is significant as it comes in the face of improving political and economic news coming from all quarters of the world. Prices of gold, often taken as a reflection of the risk aversion of investors is a key indicator that is studied to understand the direction in which business sentiments are moving.

The three factors that are contributing the most at this time in shaping the world economic climate are; The Sino-American trade war situation, secondly by developments in Europe over the January 2020 Brexit due date and thirdly by the slowdown in the Chinese economy.

China, the world’s second largest economy has been facing a tough time domestically with its economy slowing down and the country facing a severe shortage of a number of commodities ranging from food items to specialist ferro-metals, the slowdown while impacting the country’s ability to manufacture has also reduced its imports of basic raw materials significantly rendering to a serious contraction in its economy is the slowest in almost thirty years is the result of the twin impact of the cyclical slowdown effect and the trade war situation with United States. Internally china has been facing a poor food situation as well, last year the country faced a severe breakout of the African swine fever, which has decimated nearly half of the domestic supply of pork, sending prices of sky high, so is also the problem with Avocado with the gap between demand and supply of the product widening rapidly, on the material side Ferroniobium one of the specialist metals that is used in the manufacture of high strength steel , finding applications in Oil and Gas pipelines and commercial vehicles is also in short supply in the country. China recently announced lowering of tariff on as many as 850 goods which it needs badly in order to meet its domestic demand, which also included the above mentioned commodities.

The tentative date for the United Kingdom breaking away from the European Union has been shifted to the end of January 2020, and with it also withered away a lot of uncertainties and confusions that had gripped the British businesses and the general public. The 31 October 2019 date though couldn’t bring the two economic blocks apart but was able to extinguish many of the uncertainties and negative headwinds that were having a material bearing on the British economy, its businesses and its people at large. Ever since the 2016 Brexit mandate till the 31 of October 2019 politico-economic climate of both United Kingdom and the European Union has be that of confusion and turmoil. Brexit even in the currently proposed simplified form will bring about large-scale disruptions in business activity in the economic block. Over the past forty-five years deep business ties have been forged on both sides. British businesses have benefited from cheap labour arriving from other European countries which not only made them cost effective but also helped them to expand their operations globally, same can also be said about cheap yet high quality raw materials that arrived in the United Kingdom. The worst to be affected by this event will be the banking industry which after the new custom and people movement regulations will see a significant part of their operations curtailed.

The United States of America has for a long time accused China of adopting unfair trade policies towards it. The forced transfer of American technological knowhow to Chinese companies and theft of intellectual property are amongst the major accusations being leveled on China by United States with the country in particular been accumulating an ever-increasing trade deficit with China on this account and has been desperate to fill the gap. China is today the worlds cheapest manufacturing base a fact which it has been vociferously promoting around the world to attract investments and in the process has become the world’s largest consumer of basic raw materials, thereby producing cheap basic and intermediate products and exporting the same to the rest of the world, manufacturers in the United States of America and the rest of the world have been regressively impacted on account of these cheap and often low quality imports and have been liaising with their respective governments to take corrective measures to protect local businesses, in response to this call from local industries United States has time and again adopted aggressive stance against China, with the last salvo of tariffs being targeted at a time when it will impact China the most . This tariff and counter tariff war between the two nations has not only damaged China United States trade relations to a great extent but has also been having a detrimental effect on the diplomatic relations between the two countries, moreover the world economy has also been significantly impacted by this trade war situation between the world’s largest and the second largest trading blocks. The situation has not only depressed business sentiments across the world as both of these countries are the largest consumers of basic commodities as well as the largest markets for semi-finished and finished goods but a weakness in the demand, supply and a tweak in trade tariffs between these two countries disrupts the demand supply equilibrium of the entire world economy, this trade war situation is not only impacting commodity markets across the world but is also having a cascading impact on the world currency and capital and all other markets of the world. The International Monetary Fund in its world economic forecast report published in 2019 has painted a not so encouraging picture of the world economy and has held China United States trade war a major factor resulting in the same, however, some respite on this situation was seen towards the second half of 2019 with both countries engaging in trade negotiations to move away from this mutually destructive stances. There have been signs of subsiding of tensions between two of the largest economies as continued engagement on the highest levels of talks with their respective heads of government are giving slow but encouraging results by 11 October 2019 the Trump administration made an announcement that it has reached an understanding with its Chinese counterparts, with the American side agreeing to drop certain tariffs imposed on Chinese goods that were set to go online by the end of October in exchange for the Chinese side agreeing to buy increased amount of American farm goods along with allowing American financial firms getting greater access to the Chinese markets.

The situation overall is improving significantly on all the above mentioned fronts and may show its effect in coming weeks on the gold prices.



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