- Gold has had a difficult time as global trade and geopolitical tensions eased.
- China and the US agreed to slash tariffs for 90 days.
- Gold found some relief on Tuesday after the US released downbeat inflation figures.
Gold fell on Wednesday as investor focus returned to the US-China trade truce. A pause in the trade war has improved risk appetite, hurting the safe-haven metal. However, the price rebounded in the previous session after downbeat US inflation figures.
Since last week, gold has had a difficult time as global trade and geopolitical tensions eased. Many US trading partners like Japan, India and South Korea made progress towards signing trade deals with Trump. Furthermore, the US signed a deal with the UK, leaving a baseline tariff of 10%. The move boosted optimism over more trade deals that would ease global recession fears.
Gold (Source: Bloomberg)
Over the weekend, China and the US held talks that resulted in a temporary deal, sending gold lower. The two countries agreed to slash tariffs for 90 days. The US lowered tariffs on Chinese goods from 145% to 30%. Meanwhile, China lowered tariffs on US goods from 125% to 10%. The deal paused a raging trade war that had threatened the stability of the global economy.
Gold does well when there is uncertainty. Therefore, the trade deals were bearish for the yellow metal. However, analysts believe it is too early to say trade tensions between China and the US have eased completely. After all, the deal will only last 90 days.
Elsewhere, geopolitical tensions eased after a ceasefire deal between India and Pakistan. The conflict between the two countries had gone on for a few days, raising fears of another war that would dim the outlook for the global economy.
Meanwhile, Russia and Ukraine are making progress towards a ceasefire deal. Putin is more willing to meet Zelensky, increasing hopes that the war might soon pause. Such an outcome would eliminate the risk of an escalation, hurting gold prices.
However, gold found some relief on Tuesday after the US released downbeat inflation figures. The CPI increased by 0.2% in April, missing forecasts of 0.3%. At the same time, the annual figure came in at 2.3%, compared to estimates of 2.4%. The poor figures increased expectations that the Fed will cut rates in September. As a result, the dollar fell, making gold cheaper for foreign buyers. Gold also got support because it is non-yielding and does well when rates are low.
