Gold futures fell Tuesday as concerns over a potential trade war prompted more investors to seek refuge in the U.S. dollar, lifting a benchmark index for the greenback to its highest levels of the year.
Gold traded at its lowest levels of 2018 as it bucked what is typically a haven role for the precious metal when markets are roiled.
“Gold has descended into the abyss despite intensifying trade tensions rattling financial markets and leaving investors on edge," said Lukman Otunuga, research analyst at FXTM.
“The driver behind gold’s depreciation remains an appreciating U.S. dollar,” he said. “With the dollar likely to find ample support amongst the bullish sentiment towards the US economy and heightened expectations of higher U..S interest rates, old could be poised for further punishment.”
August gold GCQ8, -0.18% fell $3.60, or 0.3%, to $1,276.50 an ounce, with prices based on the most-active contracts poised to finish the session at their lowest of 2018.
Among exchange-traded funds, the SPDR Gold Trust GLD, -0.22% fell 0.4% and the iShares Silver Trust SLV, -0.90% lost 1.1%. The VanEck Vectors Gold Miners ETF GDX, -0.62% shed 0.7%.
“As the trade dispute between the U.S. and China is threatening to escalate, sentiment among market participants is becoming noticeably gloomier, stock markets are falling, cyclical commodities such as base metals are under pressure. Only gold appears unbothered by all of this,” said Carsten Fritsch, commodities analyst at Commerzbank.
Trade developments sent stocks sharply lower, and some analysts have said gold selling may be used to generate returns and offset losses in so-called risk-on markets. But the developments also boosted the dollar, which does tend to move inversely to gold.
The ICE U.S. Dollar Index DXY, +0.35% a measure of the dollar against a half-dozen major currencies, was up 0.3% at 95.10, holding at 2018 highs.
After Beijing’s retaliation against U.S. planned tariffs on $50 billion worth of Chinese imports, U.S. President Donald Trump asked U.S. trade representative Robert Lighthizer late Monday to identify $200 billion more in Chinese products that could be subject to tariffs of 10%. The U.S. president also threatened to find $200 billion more worth of goods if China tried to retaliate against those additional tariffs.
A spokesperson from China’s Ministry of Commerce said China will have no choice but to take comprehensive measures in response to the U.S.’s trade moves, the state-run Xinhua News Agency reported.
“We find it incomprehensible that gold should not be in demand in the current market environment, characterized as it is by high levels of uncertainty, and is trading instead close to its lowest level since late 2017,” Fritsch said. “And as if this were not enough, ETF investors actually jettisoned some of their holdings [Monday]. The gold ETFs tracked by Bloomberg registered outflows of 4.5 tons. It may be that investors are selling gold just now to offset losses in other asset classes.”
Read an archived story: Rising angst around global politics doesn’t move gold like it used to
The intensifying U.S.-China trade spat also weighed on prices for industrial metals Tuesday.
July silver SIN8, -0.61% shed 13 cents, or 0.8%, at $16.31 an ounce, aiming for the lowest settlement since mid-May.
July copper HGN8, -1.85% fell 1.5% to $3.061 a pound. If these losses hold, the contract will be down nearly 2.7% so far in this young week. On the London Metal Exchange, copper at one point hit a near three-week low at $6,838.50 a metric ton before improving.
Read: Copper, industrial metals slide as U.S.-China trade row heats up
July platinum PLN8, -1.97% edged down by 2.2% to $864.20 an ounce, while September palladium PAU8, -2.06% changed hands at $967.390 an ounce, down 1.5%.