Fears of trade war push gold prices higher

Key Points
  • Spot gold was on track for a second consecutive weekly loss.
  • President Trump decided to place tariffs on imports of aluminium and steel on Thursday.
Gold will continue to shine amid a weak dollar, says author and gold pro Jim Rickards.
Simon Dawson | Bloomberg | Getty Images

Gold prices rose on Friday as the threat of a global trade war pushed shares and the dollar lower and spurred demand for assets such as bullion that are seen as safer investments.

U.S. President Donald Trump's decision on Thursday to place tariffs on imports of aluminium and steel raised fears of retaliation by other nations and knocked the dollar from a six-week high, making dollar-denominated gold cheaper for users of other currencies.

"The risk of trade wars which could impact economic growth and raise uncertainty plays into the hands of gold," Saxo Bank analyst Ole Hansen said.

Spot gold was up 0.13 percent at $1,317.88 an ounce at 11:51 a.m. EST. U.S. gold futures for April delivery were 1.03 percent higher at $1,318.70 an ounce.

Gold was, however, down 0.4 percent this week and on track for a second consecutive weekly loss. It touched $1,302.61, the lowest since Jan. 2, on Thursday, pushed down by expectations that the U.S. Federal Reserve will raise interest rates more aggressively than previously thought.

Higher interest rates are negative for gold because they raise bond yields, reducing the attractiveness of non-yielding gold, and tend to boost the dollar.

This is what a potential trade war with China means for the markets

But the threat of a trade war overpowered fears of interest rate increases, Hansen said. "If a trade war becomes a reality it could push inflation up and growth down and that should ease the aggressiveness of the Fed. That's why it has become the focus (of the gold market)," he said.

Also positive for gold was its ability to hold above its technically important 100-day moving average price at $1,300, also a key psychological level for investors.

Near-term technical resistance was at the 50-day moving average at $1,324.60, analysts at ScotiaMocatta said. Supporting bullion prices was an increase in holdings of gold in exchange-traded funds tracked by Reuters of nearly 17 tons, or 1 percent, since mid-February.

"Evidently some investors viewed the low price level as a buying opportunity," analysts at Commerzbank wrote.

In other precious metals, silver was down 0.09 percent at $16.456 an ounce after touching a two-month low on Thursday. It was 0.2 percent lower for the week.

Platinum was 0.25 percent lower at $963.80 an ounce, near two-month lows and down 3.2 percent this week. Palladium was down 0.03 percent at $988.90 an ounce but down 5 percent this week after suffering its biggest fall in more than a year on Thursday.