Metals Stocks: Gold prices pop higher China counter-tariffs spark bid for haven assets

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Gold futures on Friday pivoted higher after news that China was readying countermeasures against the U.S. in its lasting tariff dispute.

China said it was preparing to raise tariffs in two batches on $75 billion in U.S. imports on Sept. 1 and Dec. 15, which would coincide with the dates that Washington is slated to increase import duties on some $300 billion Beijing goods.

The apparent escalation of the tariff battle squelched risk appetite in early action and overshadowed bullish comments from St. Louis Federal Reserve President James Bullard who said that further insurance cuts are needed to combat economic weakness outside of the U.S.

December gold GCZ19, +0.30%  was up $4.80, or 0.3%, at $1,513.50 an ounce, and had hit n intraday low $1,503. Futures slid 0.5% lower on Thursday. For the week, gold is set to fall 0.7% based on last Friday’s settlement for the most-active contract. The commodity has booked a weekly gain in the past three weeks consecutively, FactSet data show.

“China additional trade tariff on US goods will ensure that overall bullish trend remains intact,” Chintan Karnani, chief market analyst at Insignia Consultants, told MarketWatch.

China news also drove benchmark bond rates, which compete with gold for haven demand, helping to support bullion buying. The 10-year U.S. Treasury note TMUBMUSD10Y, -0.58%  was at 1.61% from around 1.64% before the report. Bond prices rise as yields fall.

The Insignia analyst said yields could be a big catalyst for gold in this environment. “If bond yields does not rise and/or remains near zero, then gold prices will rise to $1528 and $1542,” he said.

A turn lower in equities also helped buttress gold prices even as the U.S. dollar, as gauged by the ICE U.S. Dollar Index DXY, +0.14%, a measure of the dollar against six major currencies, was up 0.3%. A stronger dollar can weigh on demand for commodities priced in the currency.

Before the China news markets had been bullish on stocks and other assets perceived as risky after Bullard’s comments.

Bullard’s statement comes ahead of a much-awaited speech from Federal Reserve Chairman Jerome Powell near Jackson Hole, Wyo., which could provide some insights about health of the U.S. economy and the path of monetary policy — key drivers for commodities.

Powell is set to speak Friday at 10 a.m. Eastern Time.

The Fed lowered its benchmark rate to a range between 2% and 2.25% back in July and has another policy decision on Sept. 18, with market expectations running high that another quarter-of-percentage point cut will be delivered amid signs of weakness in the U.S. economy, a slide in bond rates and an inversion of the closely watched spread between the 10-year U.S. Treasury and the 2-year Treasury note TMUBMUSD02Y, -1.81%. A so-called inversion of the yield-curve of that spread occurred earlier this week and has been an accurate predictor of recessions.

Against that backdrop gold has been buoyant but its gains have paused this week.

Craig Erlam, senior market analyst at brokerage Oanda, in a daily research note, said a fall for gold below a psychologically significant level for traders at $1,500 won’t be as significant as a breach of $1,480, which he said would indicate traders are pulling back and “allowing the correction to take place.”

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