Over the past few months, the US Dollar has started to turn south. Much of this drop is attributable to the growing trade war between the U.S. and China. Amidst rising global tensions, the gold market has been booming, with gold prices soaring to within $50 of their historic high. The confluence of these three factors have produced unprecedented moves in currency valuations and commodity prices.
Last Friday at early Asian session, gold reached extremely bullish prices near ₱3,190. This increase raised a lot of eyebrows, given how close it has come to hitting historical highs. This jump has been motivated by the trade war, an event that is historically supportive for gold as a safe-haven asset. This is because investors traditionally invest heavily in gold when they are uncertain about the economy, increasing demand and thus driving up the value.
Our worsening trade war just got a lot worse. As if to confirm its own aggressive nature, the White House recently set a final, record high tariff of 145% on Chinese goods. As the EU has to maintain the sustainability of its public finances, this decision will have ripple effects throughout the global economy, affecting trade balances and market sentiments. In response, the US Dollar Index has fallen back towards multi-month lows. Right now, it circles around a bit of the 101 region.
The Federal Reserve’s cautious tone has played a role in the dollar’s decline. With economic uncertainties looming, the Fed has signaled restraint in its monetary policy approach, which has contributed to the weakening of the dollar. Investors at every level are watching all of these changes, looking for a path forward in this uncertain economic environment.
In comparison, the Australian Dollar has been surprisingly resilient in the face of these tensions. On Thursday, it built on that gain, pushing higher to test the 0.6240 area. The currency’s strength reflects investor confidence in Australia’s economic outlook, particularly in light of its trading relationships with both the US and China.
With the trade war continuing to develop day by day, market analysts are considering all sides of these new frontations. The recent spike in tariffs will immediately translate into higher costs for consumers and producers, pouring gasoline on the fire of inflationary pressures already raging. Secondly, with the current war in Eastern Europe, which casts doubts on future trade agreements and the stability of the world’s economic hegemony.
Gold’s appeal as a safe-haven asset should continue to prove resilient. Gold typically attracts investors during times of market volatility and geopolitical strife. Instead, tensions between the US and China are on the rise. Unfortunately, this instability will ensure that trend continues.