Gold is another bender as of Friday amid clearly heightened tensions between the United States and China--tensions that the precious metal bulls are expecting will make the pre-COVID-19 trade war pale by comparison. Gold hit $1,755 an ounce on Friday, and analysts are expecting more gains this week as a series of China-related events unfold, helped along even more by grim economic data.
Not only is the US letting loose another round of restrictions on Chinese tech giant Huawei, but it’s also finally putting the 5G war on the pedestal it should: As the absolute dictator of global technological dominance. This means that nothing short of a cold war with China will have any effect.
Gold loves situations like this.
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On the Huawei front, Washington on Friday issued new rules requiring foreign makers of semiconductors using American technology to obtain a US license specifically to ship semiconductors designed by Huawei, to Huawei.
That’s a huge blow for Huawei, which largely relies on US-made semiconductors.
It’s also a blow, of course, for American manufacturers of Huawei chips. The only reprieve is a 120-day waiver for chips already in production.
Huawei has been deemed a security risk, but it’s also the king of 5G and global dominance means fighting this company.
On Sunday, China fired back, vowing to take “all necessary measures” against what the Chinese Ministry of Commerce described as abuse of power. “The U.S. uses state power, under the so-called excuse of national security, and abuses export control measures to continuously oppress and contain specific enterprises of other countries,” the Ministry said in a statement, as reported by AP.
Gold loves a good Cold War, and this time around it is likely to be an actual war rather than a tariff spat. That’s what gold bugs are banking on.
In the meantime, gold is gaining on equities losses, with the DOW losing over 270 points Friday on fear of another battle--worse than the earlier trade war--with China.
But even further buoying gold is economic data that shows retail sales diving more than 16% in April.
Consumer sentiment in the United States, though, isn’t as bad as gold bugs would have thought, and that means gold’s rise could be tempered unless fears of a cold war with China continue with increasing momentum.
Gold won’t be able to rise on economic data alone because states are gradually starting to open up, and while a recovery won’t necessarily be V-shaped and will take time, recovery is where it seems to be going based on sentiment.
While the DOW lost over 270 points Friday, it also pared some of those gains on a University of Michigan consumer sentiment survey that came in higher than expected despite the pandemic shockwaves.
It won’t be a sudden surge for gold, regardless.
As Jeff Write, executive vice president of GoldMining Inc., told MarketWatch, “I think gold is going higher towards $1,800, but still choppy trading days ahead to get there.”
By Tom Kool for Safehaven.com
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