Gold opened on a positive note this week, as US President Donald Trump threatened to impose more tariffs against China over the coronavirus pandemic, which Trump alleged originated from a lab in China.
The uptick in geopolitical risks is the primary catalyst due to renewed US-Sino tension after the White House put China in the crosshairs. On Friday, after a White House press conference, President Trump said that he had a high degree of confidence that the Covid-19 pandemic originated in a laboratory in Wuhan, while simultaneously threatening sweeping tariff retaliation towards China.
Post Mr. Trump’s statement, fresh trade tensions began to haunt global market. It raised the safe haven appeal for gold all over again. In fact Trump and other government officials restated their allegations that China failed to alert other countries about the pandemic in time and was responsible for the rampant spread of the virus worldwide. Trump stated last week that he was exploring ways to retaliate against China for spreading the virus globally and hiking tariffs was one option under consideration.
Moving onto Covid -19 and how the path of recovery would be. Gold has also turned bullish after Fed officials highlighted long-term risks to economic recovery if the US is not careful about resuming economic activity in the aftermath of the pandemic. Despite rolling out several stimulus measures, the US central bank has hinted that it could unveil more efforts to support economic recovery in the US, a sign that once again serves to boost the safe haven appeal of gold.
Gold has also gained on the back of disappointing economic data releases from Japan in the Asian session, with Tokyo’s consumer prices experiencing the first decline in three years during April. Meanwhile, the Japanese manufacturing sector continues in contraction on account of the coronavirus pandemic.
The COVID-19 pandemic has brought a pause to economic activity around the world. The coronavirus crisis has killed hundreds of thousands, incapacitated millions and affected the livelihoods of billions, prompting policy makers to fear a deflation spiral reminiscent of the Great Depression
The US, a key driver of the global economy, now accounts for a third of global infections and deaths related to COVID-19, exceeding 1 million infections and 60,000 deaths. US jobless claims have already exceeded 30 million, driving unemployment to 15% or higher. This data has propelled the gold price remains high. The unprecedented fiscal and monetary expansion by governments and central banks has boosted investment demand for gold, as liquidity floods the financial markets and reduces the opportunity cost for gold investors.
The interest rates close to zero continue to favour the upside for gold by keeping real rates in negative territory for now. Gold faces serious demand headwinds from a lack of consumer spending in China and India, but healthy investor appetite is propping up demand at present.
That comes as investor interest continues to grow in this environment of uncertainty and negative real rates. And in these situations, gold always becomes an investors favourite.
As the scale of the pandemic — and its potential economic impact — started to emerge, investors sought safe-haven assets.
Large government expenditure to stimulate “flagging economies” hit by Covid-19 has raised concerns over debt in a future without the virus.
Steps needed to keep workers safe will mean even businesses that are able to restart production will generally be running at low capacity, and most will be operating in an environment of greatly reduced demand.Last week, the World Gold Council released its first quarter 2020 demand trends report for the precious metal, where it highlighted that the global coronavirus outbreak was “the single biggest factor influencing gold demand.
Gold is becoming attractive in this environment where uncertainty is very high, growth is expected to weaken, and at the same time you have negative real rates which make gold attractive to hold as a diversifier in investor portfolios.
Gold is strengthening as stocks pull back amid concerns about “restarting” many states amid the COVID-19 pandemic and with markets even more concerned with the U.S. hardening its stance against China again, with the threat of tariffs that could derail Chinese purchases. Amidst all this there’s “growing potential” for the price of gold to break $1,800 per ounce.