Gold Regains Shine On US-China Trade War Truce

Zacks Investment Research | Dec 03, 2018 09:35PM ET

Gold prices hit a one-month high of $1,240 an ounce on Dec 3 as the United States and China agreed to a temporary truce in their trade war at the G20 summit held in Argentina from Nov 30-Dec 1. The dinner meeting between President Trump and his Chinese counterpart Xi Jinping resulted in a cease-fire in the ongoing trade dispute between the world's two largest economies, sending the dollar reeling and sparking an upside in gold prices.

The alleviation of trade war tensions between the United States and China sparked a rally in global stock markets and commodities. The Dow Jones Industrial Average was up 1.1% or 287.97 points, while the S&P 500 added 30.20 points or 1.1%. The Nasdaq Composite Index gained 1.5% or 110.98 points. After hitting a one-month high of $1,240 an ounce, gold prices closed at $1,239.60 an ounce on Dec 3.

What Led to Gold’s Turnaround?

At the much awaited meeting, President Trump and Chinese President Xi agreed to a 90-day delay to make time for further negotiations. The United States has agreed on refraining from imposing planned increase in tariffs from 10% to 25% on $200 billion which was supposed to come into effect from Jan 1, 2019 on Chinese goods exports. Per the truce, China will buy a substantial amount of U.S. agricultural, energy and industrial products. The two sides agreed to launch negotiations to reduce trade tensions further and discuss forced technology transfer, intellectual-property protection, non-tariff barriers, and cyber and agriculture issues, among other concerns over the next 90 days. President Trump also tweeted that China had agreed to “reduce and remove” tariffs on U.S. cars, now set at 40%.

This development put dollar under pressure with investors leaving the safe-haven of U.S. currency and buying riskier assets. So far this year, the constant threat of an escalating trade conflict between the United States and China led investors to seek safe haven in dollar, in turn decimating gold prices. Notably, gold prices have suffered a decline of 3.3% over the past year owing to a stronger dollar. Further, higher U.S. rates dented the appeal of gold as it does not offer much interest. This temporary cessation of hostilities will act as a major tailwind.

Industry Valuation is Inexpensive

Over the past year, the Original post

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Written By: Zacks Investment Research

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