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Amid Trade War, U.S. Fund Investors Find Little Safe Haven In Gold

Kitco News

Trevor Hunnicutt

NEW YORK (Reuters) - The fact that investors are siphoning money out of stocks is not helping gold, with the safe-haven asset suffering as people wary of a global trade war flock to the U.S. dollar.

U.S. fund investors pulled $1 billion from commodity funds, including those invested in the precious metal, the largest withdrawals since July 2017, Investment Company Institute (ICI) data showed on Wednesday.

Worries over trade are mounting, helping to push investors away from stocks but also toward the U.S. dollar, which has rallied 5 percent in the past three months against the currencies of major U.S. trading partners. That hurts demand for bullion, which is priced in dollars.

Data from Thomson Reuters’ Lipper research unit last week showed precious metals commodities funds posted nine consecutive weeks of withdrawals, with $2 billion pouring out in June alone, the most since December 2016.

Indeed, trade is unlikely to fade in importance to investors. Washington on Tuesday issued a list of thousands of Chinese imports that the Trump administration wants to target with new tariffs. In response, China accused the United States of bullying and warned it would hit back.

William Rhind, chief executive officer at fund manager GraniteShares Inc, said a trade war could eventually generate inflation that will benefit gold.

“At the moment, the positive inflationary pressures caused by trade tariffs are being beaten back by dollar strength,” said Rhind.

“As the tariffs take hold and the market adjusts to the effects, we expect inflationary pressures to increase, which will benefit holders of gold and commodities.”

Some $10.6 billion rolled out of U.S.-based stock mutual funds and exchange-traded funds (ETFs) during the most recent week, ICI said, bringing three-week withdrawals to $33.7 billion. The data covers the six days through July 3; the United States observed the Independence Day holiday on July 4.

A subset of equity funds specifically focused on international shares managed to pull in $762 million, their first week of positive sales in the past four, the trade group said.

Bond funds attracted $4.6 billion in the latest week, according to the data. U.S.-based debt funds have not seen withdrawals since February.

Reporting by Trevor Hunnicutt

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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