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Gold Benefits As Trump Tariffs Threaten Equities Market

May 6, 2019 at 18:04 by Andrew Moran

Gold futures are posting modest gains to kick off the trading week as equities are in the red amid President Donald Trump’s new measure on tariffs. While precious metals would be hurt in a full-blown trade war, the metals market is also trying to take advantage of a flat red-hot dollar and sliding stock market.

June gold futures tacked on $2.10, or 0.16%, to $1,283.40 per ounce at 17:33 GMT on Monday. Last week, gold prices suffered their worst week since the end of March, bringing their year-to-date losses to a little more than 1%.

Silver, the sister commodity to gold, is heading the opposite direction to start the trading week. July silver futures tumbled $0.05, or 0.35%, to $14.93 per ounce. The white metal also posted a huge decline of 3% last week, sending its YTD decline to 7%.

Over the weekend, President Trump tweeted that he would be raising tariffs to 25% on $200 billion worth of Chinese imports, adding that he is considered taxing another $325 billion in goods. He wrote on Twitter:

For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!

This move comes out of nowhere because for months there has been a myriad of reports that suggested the world’s two largest economies were close to striking a deal. In fact, a delegation of Chinese negotiators is in Washington in what is being reported as the closing round of trade talks.

The US equities market is drowning in a sea of red ink, with the leading indexes down by as much as 1%.

Typically, metal commodities would surge on geopolitical tensions, but tariffs and retaliation would harm the US and Chinese economies, two major markets for precious metals. However, because the US dollar, which has been surging again this year, is flat at 97.45, foreign investors are picking up the yellow metal at a lower cost. A weaker buck is good for dollar-denominated commodities because it makes it cheaper for foreign buyers to purchase.

Meanwhile, investors are going long on gold. According to the US Commodity Futures Trading Commission (CFTC), hedge funds and money managers increased their net long positions in gold in the week ending April 30.

In other metal markets, July copper futures rose $0.02, or 0.73%, to $2.84 per pound. July platinum futures added $5.40, or 0.62%, to $880.20 an ounce. July palladium futures plunged $28.30, or 2.08%, to $1,329.70 per ounce.

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