Gold gains as trade tensions stoke global growth worries

New York (May 29) - Gold gained on Wednesday as investor concerns grew about a global economic downturn driven by U.S.-China trade tensions, which also sent U.S. Treasury yields lower.

Spot gold rose 0.3% to $1,282.79 per ounce by 1017 GMT, while U.S. gold futures were up 0.4% at $1,282.70 an ounce.

"The 10-year U.S. Treasury yields have dropped to their lowest in (about) a year-and-half right now, and that seems to be a function of the fears of a slowdown in the U.S. economy and the trade war," Mitsubishi analyst Jonathan Butler said.

Global equity markets sank and U.S. Treasury yields dipped to their lowest since September 2017 as investor sentiment soured over growing global growth worries. Lower bond yields reduce the opportunity cost of holding non-interest bearing gold.

Adding to the global anxiety, China's Communist Party newspaper warned on Wednesday that Beijing was ready to use rare earths to strike back at the United States in the drawn-out dispute. This comes two days after U.S. President Donald Trump said Washington was not yet prepared to strike a deal. Gold also held up well against a relatively stronger dollar, which has been competing with bullion as the investment of choice to hedge against the trade tensions, with the U.S. currency holding near a one-week high. The dollar is repeating a trend seen last year, when it emerged as the preferred hedge over bullion from the trade concerns between the world's two biggest economies.

"Wider global interest rate differentials between the U.S. dollar and G-6 currencies have further bolstered the U.S. dollar strength whilst extending marked pressure on gold in lieu of its status as a non-interest bearing asset," Phillip Futures said.



Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, which is a gauge of investor interest in the metal, fell 0.2% to 737.34 tonnes on Tuesday from Friday. Among other precious metals, silver gained 0.2% to $14.37 per ounce, while palladium was steady at $1,336.31.



Platinum shed 0.4% to $792.74 per ounce, after earlier falling to its lowest since Feb. 15 at $787.50.

Reuters

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