The US-China trade war, a defining feature of recent global economic history, is set to resume its tit-for-tat policies, rekindling tensions between the world's two largest economies. Former President Donald Trump, during his 2024 election campaign, pledged to impose 60% tariffs on China, a move that has already begun to ripple through the global economic landscape. The initial attempt to mitigate hostilities came with the signing of the US-China Phase One trade deal in January 2020. This agreement required structural reforms and changes to China's economic practices, aiming to restore stability and trust between the two nations. However, with President Joe Biden maintaining tariffs and even adding additional levies since taking office, the fragile peace appears to be unraveling.
The return of Donald Trump to the political arena has sparked renewed tensions between the US and China. The resumption of a trade war, characterized by extreme protectionism, threatens to further disrupt global supply chains and reduce economic spending, particularly investment. These disruptions directly contribute to rising Consumer Price Index inflation, affecting economies worldwide.
Central banks, as significant holders of gold, are closely monitoring these developments. They often diversify their reserves by purchasing gold to enhance the perceived strength of their economies and currencies. In this context, the value of gold becomes intricately tied to the strength of the US Dollar. A strong Dollar typically controls gold prices, while a weaker Dollar tends to push them higher due to gold's inverse correlation with the US Dollar and US Treasuries.
Investors and central banks are now looking towards upcoming economic indicators for guidance. The US monthly employment report, known as the Nonfarm Payrolls report, due on Friday, is anticipated to provide further insights into rate outlooks. Additionally, US Treasury Secretary Scott Bessent has emphasized the focus on reducing 10-year Treasury yields rather than adjusting the Federal Reserve's benchmark short-term interest rate.
As the US Dollar depreciates and gold prices rise, investors and central banks seek to diversify their assets amidst turbulent times. This trend is especially evident among central banks from emerging economies such as China, India, and Turkey, which are rapidly increasing their gold reserves.