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Will Gold Keep Reacting to US-China Trade War Jitters?

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Apr. 6 2018, Updated 8:09 a.m. ET

Trade war jitters?

Among the four precious metals that we’ll be discussing in this series, only gold saw gains on Wednesday, April 4. Gold prices for April futures were up 0.23% and closed at $1,335.8 an ounce. Silver was down 0.84% to close at $16.2. Platinum was down 1.4% and was the biggest loser among the four precious metals. It ended the day at $912.1 an ounce. Palladium was also lower by 1.1% and closed at $918.9 per ounce.

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The rise in gold was most likely due to the ongoing unrest in the markets due to the US and China trade war. China said that it would impose additional tariffs on $50 billion worth of US imports. The tariffs would include products ranging from cars, chemicals, tobacco, and whiskey. This made markets jittery, which led the US dollar to fall and pushed gold higher. The sentiment didn’t provide a substantial impact on the other three precious metals.

Correlated moves

The above chart compares the performance of gold to the volatility index (or VIX). It is a barometer for overall uncertainty in the market. The higher chances that we could see weak markets led to a rise in this index.

We have seen that gold has a strong relationship with market unrest (VIXY) (VXZ). The higher the tensions in the market, the higher the demand for gold. As gold is famous as a safety asset, investors often jump to this reserve-for-safety. Though the short-term relationship between gold (IAU) and VIX can diverge in a more extended run, we can expect the two to track each other.

Some of the mining companies that also increased on Wednesday with gold include Cia De Minas Buenaventura (BVN), Eldorado Gold (EGO), Alacer Gold (ASR), and Coeur Mining (CDE). They were up 2.4%, 2.5%, 1.5%, and 2.3%, respectively.

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