Gold Falls and Dollar Firms Amid Trade War Fears

Daily gold chart with US Dollar overlay

On Tuesday the Trump administration announced a list of tariffs of 10 percent on $200 billion in Chinese goods, escalating the trade war between the world’s two largest economies.

“For over a year, the Trump Administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition,” U.S. Trade Representative Robert Lighthizer said in an emailed statement.

Last week, the US imposed 25 percent tariffs on $34 billion of Chinese imports and China responded at once with matching tariffs on the same amount of U.S. exports to China.

China only imports around $130 billion worth of U.S. goods versus the $505 billion of goods the U.S. imports from China. This means China will unable to match U.S. tariffs dollar for dollar.

Investors have favored the U.S. dollar over gold as a safe haven asset amid the current trade dispute. The dollar has been underpinned by the hawkish stance of the Federal Reserve and the fact that it is now widely anticipated that the they will implement a total of four rate hikes this year instead of three.

Gold prices fell on Tuesday and continued to soften in early trading on Wednesday. Analysts now have their eyes on the key seven-month low of $1,238.