Gold Rises Sharply Amid U.S.-China Trade Friction, Powell's Speech

(RTTNews) - Gold prices posted sharp gains on Wednesday to reach a new record high amid new friction in U.S.-China trade ties, which has derailed the progress so far made in bilateral tariff negotiations, along with increasing expectations of interest rate cuts after yesterday's speech by the U.S. Federal Reserve's Chair Jerome Powell.

Front Month Comex Gold for October delivery advanced by $38.20 (or 0.92%) to $4,176.90 per troy ounce.

Front Month Comex Silver for October delivery surged by 75.90 cents (or 1.51%) to $51.073 per troy ounce.

Notably, both gold and silver, which have risen for four consecutive sessions, hit new record closing prices today.

The renewed U.S.-China trade conflict is snowballing into a major confrontation.

Displeased by China's moves to curb its export of rare earth minerals to other countries U.S. President Donald Trump threatened a 100% tariff on Chinese imports (starting November 1). Trump also announced restrictions on China's access to "critical software" and expressed disinterest in meeting Chinese President Xi Jinping in South Korea this month as planned.

The effects of these new tariffs on the overall economy as well as the consequence of scarcity of rare earths, which the U.S. technology majors immensely need, is scaring traders.

In addition, both nations have now started collecting special port charges from each other's vessels entering their ports.

China has also halted U.S. soybean purchases, while Trump is planning to stop buying cooking oil from China.

Yesterday, Powell addressed the National Association of Business Economics in Philadelphia.

Powell emphasized that a sharp slowdown in hiring poses a growing risk to the U.S. economy and added that data in hand suggests that the current economy is where it was in September. Powell also acknowledged that the rising downside risks to employment have shifted the Fed's assessment of balance of risks.

While speaking of tariffs, Powell stressed that there is a risk that the slow pass-through of tariffs starts to look like persistent inflation.

Powell's note set the tone for additional interest rate cut expectations. Lower rates weaken the U.S. dollar and reduce real yields on Treasury bonds, making non-yielding gold serve as an attractive alternative.

The likely easing of monetary policy supported gold's value as both an "inflation hedge" and a "store of value" proposition.

Meanwhile in the U.S., the government shutdown entered day number 15.

More layoffs are planned by the White House Office of Management and Budget. While members of the military are assured of pay, huge number of the furloughed 750,000 employees are receiving "Reduction in Force" notifications. Trump has announced that on October 17, he would release a list of programs which would not open up again.

Russia continued its attacks on Ukraine's energy system; as the winter and heating season approaches, leading to severe outages in around seven regions of eastern-Ukraine.

Trump is yet to take a final decision on supplying Tomahawk missiles to Ukraine though Russia has fiercely warned the U.S. against doing so.

Along with a steady decline in the U.S. dollar over the past three years, purchases by central banks of various countries and retail investors; especially in Asia, has propelled gold prices to new peaks.

Silver, unusually, is benefitting from low supply as well as rising industrial demand in green technologies and electric vehicle manufacturing as it is a critical component in photovoltaic cells and semiconductors.

Analysts feel that instability posed by the Russia-Ukraine war, the U.S. shutdown, Fed rate cut expectations, the renewed China-U.S. dispute, huge inflows into Exchange-Traded Funds, etc., could sustain the momentum for gold prices in the short-term.