Now the world financial markets are reacting to the increasing tension between China and US. Consequently, precious metals, and specially gold, are flourishing during the chaos. Currently gold is trading around $3,220. It has retraced a bit from its all time peak of $3,237, which it hit last Friday. Gold prices are exploding. With worries of an impending recession in the U.S., investors are pouring money into gold as a safe haven.
The recent decision by China to increase tariffs on U.S. imports from 84% to a staggering 125% has intensified these economic concerns. The decision is the biggest step yet in the tit-for-tat trade war that has roiled markets for months. At the same time, the U.S. dollar (USD) is under historic siege. Consequently, an increasing number of market participants are seeking the refuge of gold as a trusted store of value.
As we’ve noted the USD has remained remarkably weak, and that resemblance to a currency in freefall would be apropos. As we noted, analysts have described this trend as the newest ultra-bullish meme dominating the market. The decline of the dollar is now affecting other asset classes in profound ways. The expectation of an inevitable recession in the U.S. is increasing. This anxiety is exacerbated by an escalating trade war with China, which only exacerbates the challenges they currently face.
Gold is enjoying its status as a safe-haven asset, which is intensifying in these crisis-ridden times. With investors looking for safe havens, gold has been on a striking price recovery and bull run. The haven asset has been climbing as traders become more worried about the markets as they react to economic uncertainty. If that wasn’t enough, fears of a coming recession are gathering on the horizon.
Gold continues to rise, pushing the EUR/USD exchange rate to remain well above the 1.1300 level. This trend was apparent as of last Friday. As long as the euro doesn’t tank against the dollar, that attitude will largely continue to prevail. This scenario highlights the broader challenges the USD is currently facing as geopolitical tensions continue to flare.
The increase in tariffs by China signifies a retaliatory measure in response to previous trade policies enacted by the United States. The tit-for-tat between two of the world’s most populous and largest economies exemplifies a deepening trough in their bilateral trade ties. This decline is leading to significant rising instability in a global market. With every new advance, there’s new fear of economic repercussions that causes investors to rethink their plans.
Leading market analysts caution that the downstream ramifications of this escalating trade war will bring a heavy toll on both nations’ economies. Once again, experts are calling alarm bells that the U.S. is headed for a recession. What they’re calling on policymakers to do is action that would stabilize relations and de-escalate the situation, not escalate it further.