Gold Prices Spark Up On Safe-Haven Demand

By Glenn Dyer | More Articles by Glenn Dyer

President Trump’s tariff antics have finally enlivened the gold market but helped undermine the prices of other metals in May.

Trump announced in a tweet that the US would impose a 5% tariff on all goods from Mexico until that country stops the flow of illegal immigrants into the country.

He said the tariffs will rise to 10% on July 1 if the crisis persists, and by another 5% for every successive month, up to 25% by October 1. He seemed to widen the reason for the tariffs to the flow of drugs into the US from Mexico.

In fact except for iron ore, gold was the only major metal commodity to show any strength in May. Copper, lead, zinc, and nickel all saw falls by Friday’s close.

Oil prices fell sharply in May – down by up to 16% for front-month contracts for US type West Texas Intermediate style crude.

Iron ore prices rose 7% over May to end on $US101.60 on Friday according to the Metal Bulletin index.

That was after hitting a five year plus high of $US108.62 earlier in the week, meaning the monthly rise was trimmed by 6% in the space of three days.

Another weak reading for Chinese manufacturing activity in May saw iron ore prices fall 2.2%.

The official manufacturing purchasing managers’ index fell to 49.4 in May from 50.1 in April, suggesting trump’s trade war is starting to bite into Chinese economic activity.

The non-manufacturing survey remained solid at above a reading of 54, meaning still solid growth was happening in the wider Chinese economy.

US corn futures rose 17.9% in May though on the CBOT, and were up 5.8% last week alone. US soft winter red wheat jumped by a 17.7% in May and rose more than 3% last week although both weakened late on Friday in the wake of Trump’s Mexican tariff tweet.

Soybeans fell 1.2% on Friday and only managed a 2.9% gain over May on vague hopes the Chinese would step up buying. That rise was due to a 5.9% gain last week though.

Gold futures rallied though in the wake of the abrupt decision by Trump to impose escalating tariffs on $US365 billion of Mexican exports to the US (much of which are finished goods returning to the US from factories in Mexico).

The surprise announcement by tweet cost the big 3 US car companies – GM, Ford, and Fiat Chrysler- $US17 billion in lost stock market value alone on Friday.

As a result, gold reassumed (along with sovereign bonds such as US Treasuries) its safe-haven status for nervy investors and futures rose on Friday to their highest finish in over seven weeks.

“Washington’s threat of tariffs on Mexico exacerbated fears of a global trade war and recession, which saw a ‘flight to quality’ and gains for safe-haven gold,” said Mark O’Byrne, research director at GoldCore, according to a report on Marketwatch.com.

Comex gold for August delivery jumped $US18.70, or 1.5%, to settle at $US1,311.0 an ounce. That was gold’s highest finish for a most-active contract since April 10. Gold rose 2.1% for the week and 2% for May.

Comex July silver futures rose 7.6 cents, or 0.5%, to $US14.567 an ounce, for a tiny weekly rise of nearly 0.1%, but a near 3% slide for May.

Benchmark three month copper futures on the London Metal Exchange (LME) ended Friday and May down 0.4% at $US5,830 a tonne.

That saw the metal lose 9% in May, its third straight monthly fall and a signal again to markets that China’s economy, especially manufacturing, is weakening.

Most other industrial metals also fell in May, with zinc having its biggest monthly tumble since 2012.

It closed down almost 11%.

Tin fell 5% in May after an 8% tumble in April.

Lead fell 6% but LME aluminium finished flat for the month.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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