Monday market report: Gold and silver race higher vaulting key milestones as trade tensions tighten
Susannah Streeter, chief investment strategist, Wealth Club: ‘’In this febrile geopolitical environment, gold for now seems to know no bounds. The pile on into the gilded safe haven is continuing with the precious metal racing up higher. It vaulted over the psychologically important 5,000 mark on a glittering streak, heading sharply higher as trade tensions emanating from the US, unnerved investors. President Trump threatened 100% tariffs on Canada, for daring to negotiate with China on a new trading relationship. Gold is now heading towards, 5100 an ounce, more than 2% higher in Monday’s trade. Silver is also shining amid unprecedented demand, boosted by its safe haven status and demand for its industrial use. It’s shot up by 6%, to trade around 109 dollars a barrel.
The dollar’s decline is part of the story. The greenback has taken another hit as concerns continue to swirl the impact of tariffs, high government spending and inflation on the US economy, prompting investors to recalibrate their exposure to the US. A weaker dollar makes precious metals more attractive to buy given they are denominated in the currency. As the march towards shelters offering security continues with the preservation of capital the priority, gold and silver are shining.
Given the sharp rise in metals prices, miners are leading the charge higher on the Footsie in early trade. The strength of gold and silver are outweighing the currency exchange disadvantages for the likes of Fresnillo, Antofagasta and Endeavour mining.
The pound is now at its strongest level since September, amid the dollar’s decline. It’s also partly due to falling expectations of an interest rate cut coming as soon as February, given the latest comments from Bank of England policymakers Megan Greene. She has warned that wages look set to be on the way up again this year and this could stop inflation from easing. Although her comments helped pushed up UK borrowing costs to levels not seen since early January, they’ve fallen back sharply today with UK 10-year gilt yield easing back to 4.47%. Bond investors, who demand stability on the UK political scene, may be reassured by the blocking of a bid to potentially oust Keir Starmer as prime minister. Andy Burnham has been denied the opportunity to stand as an MP, which could have potentially opened the door to a leadership battle at the top of the Labour party. There is likely to be some relief that fresh political uncertainty won’t erupt right now in the UK, especially given the highly fractious nature of US politics.
There’s wariness ahead of the Federal Reserve’s crucial decision on interest rates this week, and although no change is expected this time around, lower borrowing costs are expected to land sooner rather than later. This is also helping hasten the dollar’s decline. It’s partly because core inflation headed lower in December but mainly because the next chair of the Fed is expected to be a fan of looser monetary policy. It’s rumoured a replacement for Jerome Powell could be announced as soon as this week and the front runners are all thought to favour a lower rate environment, very much aligned with the drum president Trump has been banging.’’