Gold is finally seeing some bullish momentum as trade ructions escalate, fueling the biggest rally among the top miners in seven months.
President Donald Trump’s plan to impose a 5% tariff on all Mexican goods over illegal immigration rattled financial markets, boosting the haven appeal of the metal that has been weighed down by the strong dollar. China’s threat to blacklist foreign firms it accuses of damaging its interest also added to the global uncertainty that’s strengthening the case for owning bullion as a store of value.
Global equities are heading for the worst month since December and there are growing signals that an economic slowdown is imminent, with the outlook for China’s manufacturing sector deteriorating more than expected in May, according to data on Friday.
“The U.S. is demonstrating that they can weaponize trade on a whim,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “From China to Mexico, it sends a message that no country is safe. Gold is picking that up.”
Gold futures for August delivery climbed as much as 1.3% to $1,309.50 an ounce, the highest for a most-active contract since April 11. The precious metal is up 1.7% in May, poised to snap three months of losses. Silver also rose, trimming this month’s loss.
A gauge of the biggest gold producers tracked by Bloomberg Intelligence headed for its steepest gain since Oct. 18. Barrick Gold Corp. was among the biggest winners, with shares climbing 4.3%. Newmont Goldcorp Corp. advanced 2.4%.
“The market is kind of risk-off but the volatility index is up, so people are just buying gold again,” Sergey Raevskiy, an analyst at SP Angel, said in a telephone interview. “People are thinking that this trade war between China and the U.S. may be more protracted than we initially thought.”
The U.S. standoff with China looks set to worsen. Fresh tariffs by China on U.S. goods are set to kick in as soon as June 1, and Beijing has readied a plan to restrict exports of rare earths to the U.S. if needed. Prospects of a trade deal with Washington are now less likely after the news on Mexico, analysts said.
Another supportive factor for gold is the potential for a U.S. interest rate cut. The Federal Reserve is prepared to ease if it sees mounting risks to the expansion, Vice Chairman Richard Clarida said Thursday while stressing the economy is in a “very good place” with unemployment low and inflation muted.
These rate cuts provide “considerable scope for gold gains,” said Daniel Briesemann, analyst at Commerzbank AG. “Silver, too, should benefit in this event, following gold’s upward course. At the moment, though, silver remains relatively weak.”
Silver futures rose on the Comex, trimming their fourth straight monthly decline. Platinum futures tumbled 11% on the New York Mercantile Exchange, poised for the biggest monthly loss in more than three years. Palladium futures also fell.
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