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Gold is trading higher early Monday in reaction to China’s response to U.S. tariffs. The news drove the U.S. Dollar lower against a basket of currencies, driving up foreign demand for dollar-denominated gold.
At 0715 GMT, June Comex Gold futures are trading $1334.70, up $7.40 or +0.56%.
Traders are reacting to renewed concerns over a trade war after China imposed extra tariffs on U.S. products in response to U.S. duties on imports of aluminum and steel.
According to reports, China hit the U.S. with extra tariffs of up to 25 percent on 128 U.S. products including frozen pork, as well as wine and certain fruits and nuts. The tariffs take effect on Monday and match a list of potential tariffs on up to $3 billion in U.S. goods published by China on March 23.
In other news, hedge funds and money managers increased their net long positions in COMEX gold contracts in the week to March 27, U.S. Commodity Futures Trading Commission data showed on Friday.
The CFTC data showed gold speculators raised their net long position by 50,996 contracts to 172,834 contracts.
Prices are likely to remain underpinned today since the news is bullish and the trend is up. Furthermore, the news could bring uncertainty to U.S. equity markets which could drive money into safe haven assets like gold and the Japanese Yen.
On factor driving prices lower last week was talk that China and the United States were getting ready to begin negotiations over trade issues. It remains to be seen if these negotiations will take place given the swift retaliatory action against the U.S.
Furthermore, the U.S. is also floating the possibility of an additional $60 billion in sanctions against China due to the theft of intellectual property. There is talk that this may not take place until June, however, the U.S. may also reconsider this move.
The trade war is going to get worse depending on the aggressiveness of each side. This would likely drive investors out of the dollar and into gold.
This article was originally posted on FX Empire