Gold continues to climb fresh peaks amid escalating US-China trade war

Gold prices experienced a surge of 1% on Wednesday, maintaining their upward trajectory and reaching new record highs.

This rally was primarily fueled by a heightened demand for safe-haven assets amidst the escalating trade tensions between the US and China. 

Investors, seeking refuge from the potential economic fallout of the trade war, flocked to gold, driving its price upward. 

“On the economic data front, the calendar could become an additional tailwind for Gold to stretch even higher,” Filip Lagaart, editor at FXstreet, said in a report. 

Additionally, market participants were keenly awaiting the release of the payrolls data from the US, which could provide further insights into the health of the world’s largest economy.

The combination of these factors contributed to the notable increase in gold prices on Wednesday.

At the time of writing, the April gold contract on COMEX was at $2,898.61 per ounce, up 0.8% from the previous close. The contract had hit a record high of $2,898.86 per ounce earlier in the session. 

Trump’s tariffs and China’s reaction

In a tit-for-tat response to the newly imposed US tariffs on Chinese goods, China retaliated with its own set of tariffs on US imports.

This series of retaliatory actions has reignited the trade war between the world’s two largest economies, causing significant concerns in the global market. 

Adding to the tension, US President Donald Trump indicated that he is not in a hurry to engage in talks with Chinese President Xi Jinping to resolve the escalating trade dispute. 

This lack of urgency from the US administration further complicated the situation and raised questions about the potential for a prolonged and damaging trade war. 

The re-escalation of the trade war has already begun to impact businesses and consumers in both countries, with fears of further economic repercussions looming large.

The present trade conflict reminds analysts of the 2018 trade war when the two countries imposed escalating tariffs on each other’s goods.

Analysts, however, point out that the current situation is different in some key aspects.

“It’s aiming for finding measures that maximize the impact and also minimize the risk that the Chinese economy may face… At the same time… China is trying to increase its bargaining chips,” Gary Ng, senior economist at Natixis Corporate and Investment Banking in Hong Kong was quoted as saying by Kitco.com. 

Rise in COMEX stocks

“Trump’s erratic tariff decisions are fuelling further uncertainty, which is benefiting gold as a safe haven. This can be seen in the continued sharp rise in Comex gold stocks,” Carsten Fritsch, commodity analyst at Commerzbank AG said. 

Gold stocks at COMEX increased by more than 290 tons in January alone. Another 30 tons were added on Monday, according to the German bank. 

They have nearly doubled since the end of October, and at 32.3 million ounces (just over 1,000 tons), they are at their highest point since July 2022.

“The high price premium of gold futures on the Comex compared to the spot market is likely to have contributed to this,” Fritsch said. 

The scarcity of gold elsewhere makes gold deliveries on the COMEX attractive, according to Fritsch. 

The fact that gold is significantly more expensive on the Comex than on other trading centres is probably related to feared US import tariffs, which could possibly also affect gold.

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