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Gold, U.S. Consumers Losing The Global Trade War - FXTM

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(Kitco News) - The trade war between the U.S. and China continues to heat up with escalating rhetoric coming from both governments; however, the gold market is seeing little safe-haven demand despite the high level of geopolitical uncertainty.

Over the weekend, President Donald Trump tweeted that the U.S. is winning the global trade war. Meanwhile, China has said that it is ready for a protracted dispute. On Friday it said that it is prepared to impose $60 billion in tariffs on U.S. goods if the U.S. government imposes new restrictions.

While it’s not clear who exactly is winning the trade war, the clear loser in financial markets has been gold. December gold futures last traded at $1,218.80 an ounce, down 0.36% on the day.

“It is becoming clear that gold remains heavily influenced by the dollar’s performance and U.S. rate hike speculation,” said Lukman Otunuga, research analyst at FXTM. “With expectations heightened over the Fed raising rates two more times this year, zero-yielding gold may witness further losses down the road despite risk aversion encouraging investors to offload equities.”

Lukman added that he sees the potential for lower prices in the near-term as the U.S. dollar Index has pushed above critical resistance at 95 points.

“This is certainly bad news for Gold, which may weaken further, not only from reduced appetite but also pressure enforced by a stronger U.S. dollar,” he said.

While President Trump touts his trade war achievements, FXTM say that American consumers will be the losers in this economic battle.

In a report, Monday, Hussein Sayed, chief market strategist at the trading firm, said that the money generated from increased tariffs is doing very little to reduce the government’s debt. He noted that could raise about $21.25 billion.

“This number represents 1.33 % of the $1.6 trillion in additional debt President Trump has accumulated since taking office in 2017 and only 0.1% of the current $21 trillion in total debt. So, it doesn’t seem the imposed tariffs would reduce the American debt substantially,” he said.

Sayed added U.S. consumer could end up bearing the brunt of the global trade war as higher tariffs will lead to higher inflation and lower economic growth.

He noted that worries can already be seen in equity markets as the S&P 500 has been trading relatively sideways despite what has been one of the best earnings season in history.

“Several U.S. companies have cut their profit forecast as a result of these tariffs, especially car makers; shares of GM, Ford, and Fiat Chrysler fell sharply after announcing their results. Other U.S. companies affected by Trump’s global trade war include Tyson Foods, Harley Davidson, United Technologies, Caterpillar and Coca-Cola, among several others,” he said.

FXTM is not the only firm that sees more downside risk for gold. Last week British research firm Capital Economics lowered its forecast for gold, expecting prices to end the year around $1.200 an ounce.

Simona Gambarini, commodities economist at Capital Economics, said in a recent interview with Kitco News that a stronger U.S. dollar will continue to weigh on gold prices.

“The U.S. dollar is unlikely to fall because of trade tensions and interest rate hikes,” she said. “Investors are turning to U.S. assets for safety because of growing trade tensions.”

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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