Gold benefits from shift to safe-haven assets amid concern about free trade
Bengaluru — Gold prices rose on Wednesday to a one-week high on a weaker dollar following US Secretary of State Rex Tillerson’s sudden dismissal, which invigorated the concern of protectionist policies hampering global risk appetite.
Spot gold rose 0.12% to $1,327.56/oz at 4.02am GMT. It touched $1,329.22/oz during the session, its highest since March 7.
US gold futures for April delivery rose 0.09% to $1,328.20/oz.
On Tuesday, President Donald Trump fired Tillerson after a series of public rifts over policy on North Korea, Russia and Iran, replacing his chief diplomat with loyalist Central Intelligence Agency (CIA) director Mike Pompeo.
Risk aversion was back on the table following the unexpected news of Tillerson’s dismissal and the appointment of Pompeo, said OCBC analyst Barnabas Gan.
"Pompeo is a supporter of Trump’s trade policy and could help advance his agenda of imposing it on US trading partners … all this uncertainty and risk aversion leaves gold as a safe-haven option," Gan added.
The US dollar wallowed against the yen and other major currencies after the dismissal of Tillerson. This killed off an earlier bounce in the currency. A weaker dollar makes bullion, which is used as an alternative investment during times of political and financial uncertainty, cheaper for holders of other currencies.
"With the US protectionist rhetoric likely to ring equity market alarm bells, gold should continue to be an ideal hedge in this highly unpredictable environment," said Stephen Innes, Asia-Pacific trading head at Oanda.
Asian shares eased on Wednesday amid the fear of rising US protectionism.
Meanwhile, data on Tuesday showed US consumer prices cooled in February amid a decline in petrol prices and a moderation in the cost of rental accommodation, the latest indication that an expected pick-up in inflation probably will be only gradual. Inflation is a key economic factor the US central bank considers when deciding monetary policy. A strong US inflation reading could raise the expectation for future interest rate increases, which would put pressure on non-yielding bullion.
"The 0.2% increase in consumer price index suggests it won’t be enough to spur more rate hikes by the Fed than already expected," ANZ analysts said in a note.
Spot gold might rise to $1,334/oz, as it had cleared a resistance at $1,327, said Reuters Technical analyst Wang Tao.
In other precious metals, silver rose 0.5% to $16.62/oz.
Platinum gained 0.3% to $964.50/oz and Palladium edged 0.1% higher to $991.47/oz.