Gold continues to gain historic amid escalating trade war

Written by Samer Hasn, Senior Market Analyst at XS.com

Gold has hit record highs for the fifth consecutive day, surpassing $2,877 per ounce in spot trading.

Gold’s consecutive gains come amid escalating trade wars between the US and China, which are likely to deepen concerns about the economies of both countries. These consecutive peaks for gold also coincide with declining Treasury yields and lackluster US stock market performance, reinforcing the safe haven demand hypothesis, which was also after a larger-than-expected decline in job openings in December.

These factors add to the uncertainties surrounding the global economy and geopolitical realities, which together contributed to driving investment demand for gold to grow by 25% in 2024 compared to 2023 and by 32% in the fourth quarter compared to the same period in the previous year, according to the World Gold Council report.

The trade war now appears to be the most significant factor fueling uncertainty, which in turn drives demand for safe havens. Concerns are growing today as the trade war is expected to escalate further, although it began less severely than expected with the inauguration of Donald Trump.

With tariffs on Chinese imports entering the United States taking place, more signs of the coming escalation have emerged today. Chinese authorities are preparing to open an investigation into Apple over its App Store policies, according to Bloomberg News. This comes after the announcement that Google will be targeted with antitrust investigations, in addition to restricting exports of some rare metals and imposing tariffs on some imports from the United States.

Although China’s retaliatory steps appear limited and do not target strategic goods and targeting only an estimated $14 billion in American imports, they may represent the beginning of a broader escalation of the trade war, as they may encourage Trump to make more aggressive decisions, according to what The New York Times reported from experts. China’s retaliatory measures signal the possibility of harming American companies, but at the same time, they open the door to negotiation.

In addition, according to The Times, the escalation of tensions between China and the United States may affect the prospects of stopping the war in Ukraine. China is the largest supporter of the Russian economy, and yet escalation will make cooperation difficult to end the war. While the absence of a near horizon for settling the war in Ukraine will keep uncertainty high in the European Union countries, whose economies are not only suffering from this war, but also from the economic threat of the upcoming trade war.

Escalation with China will also lead to a redrawing of the map of alliances around the world, according to The Times in a separate report. Trump’s hostility towards its allies and enemies, in addition to cutting off aid from the United States, will attract the affected countries and China to ally with each other. This in turn will not be unlikely to force the United States to escalate further to avoid losing its global hegemony.

Zaid Barem/ ymm