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Gold Erases Gains as Trump Ratchets Down China Trade-War Tension

Felix Njini and Justina Vasquez

(Bloomberg) -- Gold erased gains after U.S. President Donald Trump said China wants to make a deal on trade, easing demand for the metal as a haven.

Bullion futures for December delivery settled little changed at $1,537.20 an ounce at 1:30 p.m. on the Comex in New York, after surging as much as 1.8% to the highest since April 2013. The metal jumped Friday and global stocks plunged as the world’s two biggest economies levied tit-for-tat tariff increases.

Markets reversed later Monday after Trump said China “very badly” wants to resolve trade negotiations and the French and U.S. leaders made optimistic remarks about developments with the Asian nation. Top Chinese negotiator Liu He earlier called for calm talks and urged dialogue, while a top state-media editor in Beijing questioned Trump’s version of events.

Gold has surged this year as the trade fight hurts the economic outlook, boosting odds of more U.S. rate cuts from the Federal Reserve. Low rates are a boon to gold, which doesn’t offer interest.

“The price action in gold last night was pretty indicative of just the renewed fear -- the renewed macro fear and the renewed uncertainty -- in the market,” Nicky Shiels, an analyst at Bank of Nova Scotia, said by phone Monday. With more tariffs “than any time before” currently in place or being put in place, “we would expect some sort of Fed easing in response to that, or accelerative Fed easing, should continue to support gold’s case.”

Gold will extend gains as the U.S.-China standoff harms growth, risking a deeper slowdown and inviting more central-bank easing, according to UBS Group AG, which jacked up price forecasts with a prediction the precious metal may hit $1,600 within three months.

“Gold has demonstrated its safe-haven qualities and we stay long,” Giovanni Staunovo and Wayne Gordon, analysts at UBS’s wealth-management unit, said in a report before Trump’s latest remarks.

As gold’s rally has gathered pace, investors have pushed into bullion-backed exchange-traded funds, which have reached the highest since 2013. Holdings are set for a third monthly gain, according to data compiled by Bloomberg.

--With assistance from Martin Ritchie, Ranjeetha Pakiam and Jake Lloyd-Smith.

To contact the reporters on this story: Felix Njini in Johannesburg at fnjini@bloomberg.net;Justina Vasquez in New York at jvasquez57@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Joe Richter, Steven Frank

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