Posted 3rd August 2022

Gold Holds Near $1,760 as Haven Demand From US-China Tensions Offset by Hawkish Fed

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Gold is trading around $1,760 an ounce as it finds itself being pulled by two contrasting factors.

The visit of US House Speaker Nancy Pelosi to Taiwan has increased political tensions between China and the US with China increasing military operations in the area in response and increasing demand for safe-haven assets such as gold as a result.

However, gold’s potential gains from this deteriorating political outlook is offset by the latest comments from Federal Reserve officials that point to further large interest rate hikes with Charles Evans forecasting an increase of 50 to 75 basis points in September. In this environment of ever-rising interest rates, gold’s appeal diminishes due to its lack of yield.

While Fed officials have been speaking about future rate hikes, tomorrow is set to bring another actual interest rate increase with the Bank of England expected to raise its benchmark rate by 50 basis points. 

Historically, even during the depth of Donald Trump’s US Presidency when US-China relations were historically low amid a trade war, the situation has ultimately resolved itself in a harmony of sorts. So while Pelosi’s Taiwan trip is causing a short-term increase in tensions, when this stern rhetoric and military show of strength fades, market focus will return to interest rates and the negative long-term impact that is likely to have on gold.

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