The prices of gold recovered on Wednesday as investors doubt the impact of the Phase 1 trade agreement between China and the U.S. after it was reported that tariffs on Chinese products will not be lifted even after the signing of the deal.
U.S. gold futures increased by 0.5% to $1,552.30 an ounce. Spot prices increased by 0.3% to $1,551.38 an ounce as of 0332 GMT. Yesterday, spot gold dropped to its lowest pricing in almost two weeks at $1,535.63 per ounce.
U.S. Treasury Secretary Steven Mnuchin said yesterday that tariffs on Chinese products will remain even after the signing of Phase 1 and will only be lifted after the completion of Phase 2 or after the U.S. presidential election in November. This arrangement reduces the economic benefits of the deal for China because it will have limited access to the U.S. which is its second-largest trading partner. The signing ceremony is scheduled to be held at the White House at 1630 GMT.
There are other concerns about the agreement. China reportedly pledged to purchase close to $80 billion of manufactured goods from the U.S. as part of the deal. But some trade experts consider the amount unrealistic.
According to Warren Patterson, an analyst with ING, Mnuchin’s statement roiled the markets and supported the pricing of the precious metal. Given the lingering trade uncertainty, Patterson does not expect gold price to go below $1,500 an ounce over the next year. The Treasury Secretary’s comments lowered investors’ risk appetites and affected the Asian equities market which in turn supported the bullion.
Aside from the terms of Phase 1, there are apprehensions about the future of U.S.-China relations. The U.S. is close to publishing a rule that would prevent the shipments of foreign-made products to Chinese telecom giant Huawei. In addition, a U.S. Senator has introduced a bill that seeks to ban the sharing of U.S. intelligence with countries that authorize Huawei to operate 5G technologies within their territories.
Meanwhile, investors are waiting for the details of the Phase 1 agreement which Mnuchin said will be made public later today. They are also waiting for the publication of the U.S. Federal Reserve’s Summary of Commentary on Current Economic Conditions due at 1900 GMT.