Gold prices fall prey to trade conflict and US dollar strength

Market report Michael Blumenroth – 22.06.2018

Weekly market report

A week ago, I would have been surprised at the way the gold price withstood the almost daily new eleven-month highs of the US dollar. This, however, quickly changed. Already on Friday afternoon, the gold price plummeted to new annual lows.

Tariffs impact price development of commodities

This was not only due to the strong US dollar; also on Friday, President Trump officially kicked off the trade conflict with China by putting the first tariffs on Chinese goods worth around $50 billion into effect. China threatened countermeasures, and the US in turn increased tariffs to $200 billion. A further escalating trade conflict is certain to impact global economy and thus also demand for commodities. Hence, we saw large-scale selling activity in commodities investments, especially in copper, silver and platinum, the latter dropping to a two-and-a-half-year low. This development of course also impacted the gold price.

Gold in US dollar weakens

While the yellow metal traded at $1,301/ounce a week ago, it had crashed to $1,275/ounce by Friday afternoon. Throughout the days that followed, gold traded mostly between $1,285/ounce and $1,270/ounce before plunging to a new annual low of $1,261.50/ounce, its lowest level since December. During the course of the day, the gold price somewhat rebounded. It currently stands at $1,270/ounce.

Similar development in euro

The gold chart in euro has seen a similar development. Xetra-Gold dropped from €36.15/gram last Friday morning to €35.40/gram in the afternoon. A further drop occurred yesterday, to €35.05/gram. It stood at €35.10/gram just before the start of trading. Due to the current weakness of the euro, the precious metal remains well above the annual low of €34.25/gram. 

Focus remains on global political situation

Throughout the coming days, attention will remain on the trade conflict between the US and China as well as the status of the US-EU conflict. The political situation in Italy will also remain under scrutiny, and a further focus will be on next week’s EU summit. If the stock markets remain under pressure, Gold might again gain attractiveness as a safe haven.

Please note that the next commentary will be published in two weeks. I wish all of our readers a relaxing and happy weekend, and to everyone watching the FIFA world cup: good luck to your team! 

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