Gold prices rise after 2-day skid as US and China make Phase 1 trade deal official

Gold prices rise after 2-day skid as U.S. and China make Phase 1 trade deal official

Kinesis money, Kinesis 500

Gold futures marked their first gain in three sessions Wednesday, as U.S. benchmark stock indexes eased back from the day’s high following the official signing of the U.S.-China Phase 1 trade pact, and the U.S. House of Representatives’ vote to send articles of impeachment of President Donald Trump to the Senate.

As gold prices settled, the S&P 500 index SPX, +0.19% pulled back from its high and that appeared to “have given gold a further lift,” said Michael Armbruster, managing partner at Altavest.

“With the S&P 500 looking expensive at current levels, and the [Federal Reserve] continuing to add liquidity, it makes sense that investors would look to diversify into gold,” he said.

He expects gold to rally back above $1,600 in the months ahead.

On Wednesday, gold for February delivery GCG20, +0.12% on Comex rose $9.40, or 0.6%, to settle at $1,554 an ounce, after declining for a two straight sessions. Prices extended their gains into the electronic trading session, to stand at $1,555.80 shortly after the release of the Fed’s Beige Book, which said economic activity continued to expand “modestly” over the last six weeks of 2019.

March silver SIH20, -0.29% picked up 24.6 cents, or 1.4%, at $17.988 an ounce, after shedding 1.4% on Tuesday. March copper HGH20, -0.31%, meanwhile, edged down by less than a cent, or 0.3%, to $2.866 a pound.

Part of the recovery in gold prices is likely “the result of news that the US will leave tariffs in place until the US has proof of compliance with the Phase 1 agreement,” possibly after the November U.S. presidential election, analysts at Zaner Metals wrote in a daily report Wednesday.

According to the Wall Street Journal, the first phase of the trade deal will include roughly $200 billion in Chinese purchases of American goods and services over the next two years. However, tariffs on some $360 billion of annual Chinese goods will remain in place, with reports by Bloomberg News of that development on Tuesday causing the U.S. equity market to trim strong gains and some benchmark stock indexes to turn negative.

For now, “gold prices have retraced overbought levels and are finding a more stable footing around the mid-$1500s for the time being, with investors eager for details surrounding the expected rollback in tariffs,” wrote Han Tan, market analyst at FXTM, in a daily research note.

U.S. Treasury Secretary Steven Mnuchin during an interview on CNBC Wednesday morning said that additional rollbacks of tariffs on China goods are expected in the second phase of the trade talks but didn’t specify.

Looking ahead, the World Gold Council said in a report issued Wednesday that the “interplay between market risk and economic growth,” particularly financial uncertainty and lower interest rates, as well as weakening global economic growth and gold price volatility, will drive gold demand this year. Net gold purchases by central banks, meanwhile, will likely “remain robust.”

Also on Comex Wednesday, platinum futures settled above $1,000 an ounce for the first time since 2018 and palladium futures notched another record finish.

April platinum PLJ20, -0.21% tacked on $38.30, or 3.9%, to $1,025.60 an ounce and March palladium PAH20, +0.92% rallied by $41.80, or 2%, to $2,165.10 an ounce.

“While the palladium market did not immediately launch higher following strong Chinese import export news, it ultimately forged another new all-time high,” said analysts at Zaner Metals. China’s exports rose 5% in 2019 from a year earlier in yuan terms, according to official data released on Tuesday.

“It should also be noted that platinum prices have now forged a breakout up overnight and have reached the highest level since February of 2018 and that suggests the market has finally caught lift from palladium,” the Zaner analysts added.

 

MYRA P SAEFONG
MARKETS/COMMODITIES REPORTER
Published: Jan 15, 2020 2:15 p.m. ET