The dollar fell to a three-year low and gold hit fresh highs on Friday as the trade war between the world’s two largest economies intensified.
The US dollar index, which measures the currency against six main peers, fell by as much as 1.2 per cent, taking it temporarily below the 100 level for the first time since July 2023 after China increased its tariffs on US imports to 125 per cent in retaliation for America raising its levy to 145 per cent.
The euro was up 1.7 per cent to $1.13855, a level last seen in February 2022 and the pound was 0.7 per cent higher at $1.313.
• China hits US with matching 125 per cent tariffs
Gold rose to a record $3,223.72 a ounce after China increased tariffs on US imports to 125 per cent in a tit-for-tat response to President Trump ratcheting up duties on Chinese goods to 145 per cent.
Gold is priced in dollars, so when the currency weakens, the price of gold usually rises. This makes it attractive during currency volatility or when confidence in government-issued currencies declines.
Apart from tariffs, the rally in the precious metal over the past year has been fuelled by central bank buying, expectations of interest rate cuts by the Federal Reserve, and geopolitical instability in the Middle East and Europe.
• Gold hits record high of $2,353 on conflicts and rate cut hopes
Gold has been a source of value for thousands of years. It is considered a safe haven asset because it tends to retain or increase its value during times of economic uncertainty or market turmoil. Unlike currencies, which can be printed at will, gold is finite and cannot be manufactured. This gives it intrinsic value.
It is also seen as a hedge, or store of wealth, when inflation erodes the value of a currency. US consumer prices on Thursday showed inflation fell unexpectedly in March.
Traders are now betting that the Fed will resume cutting interest rates in June and probably reduce rate by a full percentage point by the end of 2025.
On the downside, gold doesn’t generate cash flow — it pays no dividends or interest. Also, while it is regarded as a safe haven, the price can be volatile in the short term.
Giovanni Staunovo, an analyst at UBS, the Swiss bank, said: “We believe gold has further to run, in the upside case, we target $3,400 to $3,500 per ounce over the months ahead.”
Alexander Zumpfe, a precious metals trader at Heraeus Metals Germany, said that market turmoil and the prospect of a slowdown in global growth or even a US recession were “all factors reinforcing gold’s role as a crisis hedge and inflation shield”.
The prospect of a slowdown in global growth and thus lower demand pushed the price of Brent crude, the international benchmark, steadily down over the week despite a small rally on Friday when it rose 1.5 per cent to $64.70 a barrel, still not enough to claw back a 15 per cent drop since the start of April.
In contrast to alternative assets like gold and bonds, equity markets had a relatively quiet end to a volatile week. In London the FTSE 100 was up 0.6 per cent on the day at 7,964.18 but 1.1 per cent lower over the week and almost 8 per cent down since the US tariffs came into force on April 2. The more domestically focused FTSE 250 dipped on the day, down 0.01 per cent at 18,514.85, but managed a weekly gain of 0.8 per cent.
Germany’s Dax was down on the day and 1.3 per cent lower over the past five days while the Cac 40 in Paris also fell on the day and ended with a weekly loss of 2.3 per cent.
On Wall Street, after Thursday’s sharp sell-off, US equity markets staged a modest rally led by the technology-dominated Nasdaq with a rise of 2 per cent to 16,724.46 while the more broadly-based S&P 500 1.1 per cent closed up 1.8 per cent at 5,363.36. The Dow Jones industrial average rose 1.56 per cent to 40,212.71.
Despite the end-of-week recovery, the three main US equity indices have fallen more than 6 per cent since the tariffs began in early April and are now in official correction territory having dropped by more than 10 per cent from their most recent record highs.
“We remain in the early innings of this global trade regime change, and while the 90-day pause on reciprocal tariffs temporarily reversed the market selloff, it does prolong uncertainty,” Darrell Cronk, president of Wells Fargo Investment Institute, said.
