US President Donald Trump shocked the global markets after he tweeted last night that he would sharply hike tariffs on Chinese goods next Friday, increasing the risk-off sentiment of the market sending the investors to more safe-haven assets such as Gold, Bonds and Japanese Yen.

Trump tweeted on Sunday night that he is planning to raise the US tariffs from 10% to 25% on $200 billion Chinese imports in this Friday as the trade negotiations with the Chinese government has limited progress so far.

The market has surprised from Trump’s tweets as the general trade talk sentiment was positive until now from both parties while the Chinese negotiation team was planning to travel in US for further talks this Wednesday. Trump’s tweets have increased the risk for possible blow up of the negotiations and cancel the recent progress that has achieved as has repeatedly reported from both sides. The situation could get worst in case the Trump administration eventually apply the threats and impose the new level of tariffs to the whole of Chinese imports in US and possible similar response from the government of China towards US imports to the country.

Gold contract was one of the biggest winners of the day as the investors moved to the yellow metal for safety. Gold opened with gap up during the Sunday night Asian opening session while it hit intraday high of $1.286/oz before retreat to the current levels of $1.282. Silver and Copper prices had the opposite direction than Gold, trading lower by -0.3% and -0.8% at $14.85/oz and $2.78/lb respectively, due to their industrial usage mainly from the Chinese factories which are the largest consumers of the industrial metals in the world.

WTI and Brent oil contracts tumbled by 2% at $60.60 and $69.40 per barrel respectively during the European trading session while they hit intraday lows of $60 and $68.80 during the morning Asian session amid the Trump tweets. Possible escalation of the trade tension between the 2 largest economies of the world would raise concerns for the future demand for fuel consumption.

Commodity market has generally benefited from the progress of the trade talks during 2019 together with the success of the Chinese government stimulus plans to boost their economy after the last’s year slowdown, with Copper hitting new highs around $3 and Crude oil price raised by 40%. China and other Asian countries are the largest consumers of Commodities in the world, having more than 60% of the entire global demand. Possible slowdown of the Asian tigers due to the new tariffs will hit hard the commodity market and the commodity suppliers such as Australia, New Zealand, Brazil and others.

 

Technical Picture for Gold:

Gold price spiked near $1.286/oz at the opening of Sunday trading session before retreat to the current levels of $1.283/oz during the European session amid the risk-off sentiment of the market after Trump’s tweets.

The price of the yellow metal approached once again and failed to break above the resistance level of $1.288/oz which has stopped twice the rise of Gold last week. The bulls have the upper hand as long as the price stays above $1.275- $1.280 and they could retest the $1.288 once again.

Possible new rejection of the $1.288 and especially if the price moves below $1.275 then the selling pressure will be increased, and the price might retest the recent lows of $1.266-$1.270.

 

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Vrasidas Neofytou

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