Gold futures could continue to climb higher amid rising US-China tensions

Gold futures are down a touch on Tuesday, but with US-China tensions rising amid the Covid-19 pandemic the price of the precious metal is trending higher and could see significant gains over the coming months.

Gold futures June contract is down a little over 1% at $1707.25 at the time of publication, with the spot price trading at $1713.65 per ounce.

US-China tensions heat up again

Rising tensions between the world’s two largest economies is driving precious metals higher, but also oil too, with Brent crude surging above $35 a barrel, up from $22 at the end of April.

The prospect of an all-out trade war between China and the US began to look increasingly likely over the weekend, after China’s foreign minister, Wang Yi, accused officials in Washington of pushing the two countries towards a ‘new cold war’.

‘China has no intention to change, still less replace the United States,’ Yi said on Sunday. ‘It’s time for the United States to give up its wishful thinking of changing China and stopping 1.4 billion people in their historic march toward modernisation.’

Beijing’s wider relationship with western economies is also coming under increased strain, with the UK government interested in implementing tighter rules to protect weakened British businesses from Chinese takeovers.

Over the weekend, the UK government also announced an emergency review of its deal with Chinese telecoms company, Huawei, which is contracted to build and expand Britain’s 5G networks.

‘Following the US announcement of additional sanctions against Huawei, the NCSC is looking carefully at any impact they could have to the UK’s networks,’ a government spokesperson said.

Gold could hit new highs, says Citi

The upside of a world reeling from the Covid-19 pandemic is that safe haven assets like gold are likely to surge in the coming months as investors shift away from riskier assets like equities.

Bullish sentiment among investors continues to build amid the pandemic, with commodity analysts from Citi believing the precious metal could hit all-time highs by 2021.

‘We think prices are more likely to make a slow grind higher, but generally hold a $1,600-1,700 handle, rather than quickly spike to the $1,850-1,950 area,’ Citi analysts said in a note last week.

In fact, the US-based investment bank said that it sees gold prices pushing as high as $2000 an ounce over the medium term, with demand for the commodity likely to continue to rise amid the macroeconomic and low interest rate environment.

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