Gold hit a six-year high on Friday as investors piled into the safe haven metal amid an escalating US-China trade war, and the prospects of a return to ultra-loose monetary policy by the Fed.
Gold for delivery in December, the most active futures contract trading in New York, touched a high of $1,539.50 an ounce, up $31 or 2.1% from yesterday’s settlement price on the Comex market. Gold is up 20% in 2019 and trading at its highest levels in more than six years.
China on Friday announced plans to impose $75 billion in additional tariffs in retaliation for new levies President Donald Trump has scheduled for after the Christmas shopping season in the US.
Trump responded by saying the US does “not need” China and that he has “ordered” US companies to “immediately start looking for an alternative” to Chinese supply chains.
The US economy is facing “significant risks” and trade-policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the US, Federal Reserve Chairman Powell said in the text of remarks Friday in Jackson Hole, Wyoming according to Bloomberg News.
“We will act as appropriate to sustain the expansion,” he said.
US equities fell sharply on the news, commodities including oil and copper plunged in value and yields on government bonds plummeted.
The relationship interest rates in the US and the gold price is strongly negative. An environment of rising interest rates the opportunity costs of holding gold increased because the metal provides no yield and investors have to rely on price appreciation for returns.
But expectations of lower rates makes gold more attractive and also depresses the dollar, which usually moves in the opposite direction of the gold price.