The prices of gold gained on Monday despite a stronger dollar as tension grew between the U.S. and China over the COVID-19 pandemic which originated in Wuhan. Last Friday, U.S. President Donald Trump threatened to impose tariffs on China and this lifted spot gold prices by over 1%.
Spot gold is trading today at $1,705 an ounce as of 0800 GMT.
Trump is considering ways to retaliate against China for the spread of coronavirus and he said raising tariffs is “certainly an option.” He also said that he is confident that the virus originated from a Chinese virology lab. Yesterday, State Secretary Mike Pompeo stated that there was significant evidence that the coronavirus emerged from a government laboratory in Wuhan. The tariff threat has pushed down the yuan against the dollar.
But U.S. intelligence agencies have concluded that the virus was not man-made. Experts do not believe that the coronavirus was developed in a Chinese biological weapons lab from which it then escaped. Their theory is that it was introduced to humans at a meat market in Wuhan or escaped from government laboratories conducting biological hazards research. COVID-19 has already killed 240,000 around the world, including more than 67,000 in the U.S.
According to Phillips Futures senior commodities manager Avtar Sandu, the comments of U.S. government officials indicate hostility with regards to trade with China. He also said fears of a renewal of a U.S.-China trade war could benefit the yellow metal. Last year, the gold prices increased by a total of 18% because of the protracted Sino-U.S. trade dispute.
AxiCorp chief market strategist Stephen Innes added that the demand for the dollar appears to be competing for the demand for safe-haven assets. The greenback is already moving away from a one-month-low and this makes gold more expensive for investors using other currencies.
Meanwhile, the market is waiting for the release of the U.S. jobs report for April. Sandu believes that a decline in the non-farm unemployment rate would weigh on bullion prices. But other analysts maintain that gold will be supported in the long-term by low-interest rates and the widespread monetary and economic stimulus released to cushion economies against the COVID-19 crisis.
In a related development, the holdings of SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, increased by 1.1% last Friday. This reflects investors’ appetite for gold.