LAWRIE WILLIAMS: Gold regains $1,800 but v. briefly on Chinese tensions
The gold price hit the $1,800 mark very briefly intra-day on Tuesday before being brought back down sharply to the $1,760s, although its price still managed to remain positive on the day. The rise was due to geopolitical tensions with China over Nancy Pelosi’s unofficial visit to Taiwan – the first by a senior U.S. politician since 1997.
While Pelosi’s brief visit, where she held talks with Taiwan’s leader, was not condoned by the Biden Administration in the U.S, it was still seen as symbolic of U.S. support for the continued independence of the island from China. This was despite the latter’s claims that Taiwan should officially remain an integral part of the Chinese state.
China had avowed unspecified severe consequences should the visit go ahead, and while it did, in the event, conduct military manoeuvres which appeared to breach Taiwan’s territorial boundaries, and some bans on certain Taiwanese products, so far no further consequences appear to have arisen, but enhanced tensions in the area remain. There is always the threat of a Chinese military invasion, but this might bring in the U.S. as a direct participant and there is probably too much at stake here for the Chinese to take this course of action at present.
The arrival of the first Ukraine seaborne Ukraine grain shipment to Turkey may also have eased some of the European war tensions, although military activities seem to have continued unabated.
To an extent the rise in the gold price has been tempered by statements from various Fed officials suggesting that an aggressive approach to controlling inflation remains. While this is still considered to mean that the most likely interest rate rise to be implemented at September’s FOMC meeting will be 50 basis points, the odds of a 75 basis point increase are rising, particularly after Friday’s higher than anticipated PCE index figure – the biggest year-on-year rise for 40 years. While the latest CME Fedwatch tool is still forecasting a 56.5% chance of the 50 basis point increase in September, this has come down from 78% only a few days earlier. The possibility of a higher rate rise is seen as positive for the dollar and negative for gold.
Gold remained in the $1,760s in this morning’s trade in Europe, while silver just about bounced back above the $20 mark, although seemed to be struggling to hold this level. However once U.S. markets opened, the precious metals all fell back. Gold dropped back into the $1,750s and silver into the $19.90s, while equities and bitcoin both seemed to improve, although not substantially. The dollar index also gained marginally which will have helped contribute to the falls in gold and silver. Trading volumes will have been small though, as befits the summer holiday period, so markets will probably remain muted until Labor Day in early September unless some specific event, like the Pelosi Taiwan visit and the consequent fears of a Chinese reaction thereto, triggers specific market activity.