Gold advances as traders weigh US-China tensions, Hawkish Fed

Spot gold climbed 0.5% to $1 769.06 an ounce as of 12:38 p.m. in Singapore.
Image: Chris Ratcliffe/Bloomberg

Gold climbed as the dollar and bond yields retreated, with investors assessing US-China tensions and an apparent hawkish turn from the Federal Reserve.

Bullion has been drawing some haven support amid the ongoing geopolitical risks. While anxiety has eased slightly in markets, traders are still monitoring the latest developments as China halted some trade with Taiwan in retaliation to US House Speaker Nancy Pelosi’s high-profile visit to the island.

During a Presidential Office ceremony with Taiwanese leader Tsai Ing-wen Wednesday, Pelosi pledged that the US wouldn’t abandon Taiwan, reaffirming support for the democratically elected government in Taipei despite fresh threats of military action by Beijing. Pelosi became the highest-ranking American politician to visit the island in 25 years, prompting China to announce missile tests and military drills.

“With the continuing Russia-Ukraine war, there is an increased sensitivity to geopolitical issues and US-China tensions have kept a floor to gold prices,” said Madhavi Mehta, a senior analyst at Kotak Securities Ltd. “However, it is unlikely that we may see any direct confrontation between US and China so market nervousness may be subside soon.”

Bullion had dropped 0.7% on Tuesday, as Fed officials pushed back against a narrative in financial markets over the past week that the central bank is likely to pivot away from tightening to prevent a sharp slowdown.

Three Fed district-bank presidents highlighted in remarks on Tuesday that there was no sign yet of an easing in inflation, which had traders recalibrating their views on the likely pace of rate increases and on whether the Fed will cut them in early 2023.

“Disappointing economic data has made a case for the Fed to slow down the rate hikes,” said Mehta. “However, Fed officials have indicated that getting inflation under control is still a priority. We are in a new phase of uncertainty now.”

Spot gold climbed 0.5% to $1 769.06 an ounce as of 12:38 p.m. in Singapore. It rose to $1 788.05 on Tuesday, the highest intraday level since July 5. The Bloomberg Dollar Spot Index fell 0.2%, after jumping 0.8% in the previous session. Silver, platinum and palladium all rose.

© 2022 Bloomberg

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