Gold Jumps Most in 3 Weeks as Powell, China and Trump Collide

23/08/2019 18:56:47 Commodities

By Barani Krishnan

It didn’t go quite the way markets thought, but the longs in gold weren’t complaining.

Federal Reserve Chairman Jay Powell’s decision to leave markets in suspense over the central bank’s upcoming rate moves ought to have led to lower gold prices on Friday. But China’s announcement of new tariffs on U.S. products and President Donald Trump’s demand that U.S. companies pull out of the republic made sure of a rally in the yellow metal instead.

The biggest rally in three weeks, in fact.

Spot gold, reflective of trades in bullion, was up $29.77, or 2%, at $1,527.89 per ounce by 2:25 PM ET (18:25 GMT). Bullion has occasionally moved back and forth between $1,500 this week as some investors bet the Fed wouldn’t add to its dovish tone ahead of its Jackson Hole conference.

Gold futures for December delivery, traded on the Comex division of the New York Mercantile Exchange, settled up $29.10, or 1.9%, at $1,537.60 per ounce in post-settlement trade.

It was gold’s largest rally in three weeks, and the first in a while, driven by safe-haven buying over China. The precious metal had spent much of early April to mid-August in range-bound trading as longs in the market sought signs of Fed rate cuts to add to positions.

The U.S. economy is in a "favorable place," and the Fed will "act as appropriate" to keep the current economic expansion on track, Powell said Friday in a speech at the Fed's annual confab of central bankers in Jackson Hole, Wyo.

Rate cuts weaken the U.S. dollar, making commodities priced in the greenback cheaper for the rest of the world. Dollar-denominated prices of raw materials such as gold often automatically rise after a rate cut, adjusting to the phenomenon.

The Fed cut rates last month for the first time in a decade, dropping 25 basis points. Markets are expecting the central bank to do a similar reduction in September. But the Fed chief has faced relentless criticism and pressure from Trump, who accuses Powell’s slow action in cutting rates as the real reason for the slower-than-desired growth of the U.S. economy.

China was, meanwhile, retaliating against U.S. plans to levy an additional 10% tax on $300 billion worth of Chinese goods, including consumer electronics, through two stages of tariffs scheduled to go into effect on Sept. 1 and Dec. 15.

That got Trump livid, prompting him to order U.S. companies to move their manufacturing facilities in the People's Republic somewhere else. It was not known if any of the firms would comply with the president. Trump also warned of additional retaliation.

Gold's rally on Friday saw the futures contract rise about 1% on the week. It's up 7% so far in August and 20% for the year.