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Gold Gains on US-China Trade Tensions, Capped by Stronger Dollar

May 4, 2020 at 13:42 by Andrew Moran

Gold futures are posting modest gains to kick off the trading week, driven by US-China trade tensions as the White House continues to blame Beijing for the global coronavirus pandemic. There was a broader selloff in international financial markets on Monday as investors were nervous over another trade spat. But the yellow metal’s tepid ascent was capped by a strengthening US dollar.

June gold futures rose $11.30, or 0.66%, to $1,712.20 per ounce at 13:34 GMT on Monday on the Comex division of the New York Mercantile Exchange. Gold prices posted a weekly loss of about 0.7% last week, slightly paring their year-to-date gain of 13%.

Silver, the sister commodity to gold, is slipping to start the trading week. July silver futures dipped $0.038, or 0.25%, to $14.90 per ounce. The white metal fell 2.6% last week, adding to its 17% decline so far this year.

Gold had a rough week due to bullish optimism in the broader market and slumping jewelry demand during a historically important week in Asia. With a combination of bearish economic data, geopolitical developments, and expansive monetary policy, gold is trying to muster up momentum in the first full trading week of May.

Last week, President Donald Trump threatened to impose new tariffs on China over its response to the COVID-19 outbreak. He suggests that the coronavirus might have originated in a virology laboratory in Wuhan. This concern was supported by Secretary of State Mike Pompeo, who referred to “a significant amount of evidence” that the virus emerged from a laboratory. While US intelligence agencies reject claims that it was man-made, it has been confirmed that the Wuhan Institute of Virology researched various strains of the coronavirus for several years.

Both sides have yet to initiate the second round of trade negotiations after finalizing phase one of a comprehensive agreement earlier this year.

In recent days, a growing number of central banks announced additional stimulus measures to curb the economic fallout from the coronavirus. The Bank of Japan (BoJ) confirmed it would be launching unlimited quantitative easing, the Federal Reserve expanded its $2.3 trillion Main Street Lending Facility, and many emerging markets have started their own QE programs. This is typically a boon for precious metals since they are viewed as a hedge against inflation and currency devaluation.

Governments and central banks are spending and printing trillions of dollars to ensure their economies can survive COVID-19. As many countries already have hit their peaks, some analysts fear that a second wave could occur in the fall and force jurisdictions to repeat the same lockdown protocols.

The US Dollar Index, which measures the greenback against a basket of currencies, rose 0.31% to 99.39, from an opening of 98.57. A stronger buck is bad for dollar-denominated commodities because it makes it more expensive for foreign investors to purchase. The index suffered a 0.6% loss as traders heightened their risk appetite and joined the rally in equities.

In other metal markets, June copper futures were flat at $2.3095 per pound. June platinum futures added $4.90, or 0.63%, to $778.20 per ounce. June palladium futures dropped $15.40, or 0.82%, to $1,872.40.

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