On April 9th, the price of gold surged as investors sought safe-haven assets amid concerns over the stability of the US Treasury bond market, amidst the escalating US-China trade war.
At 9:30 pm, spot gold prices in the international market had risen to $3,080 per ounce, up $115 per ounce from the morning session.
According to Kitco News, Asian and European stock markets mostly fell overnight. In the US, stock indexes are expected to open lower today in New York. The stock markets plunged after news broke that China imposed retaliatory tariffs of 84% on US goods. A full-blown trade war between the world’s two largest economies is now officially underway, with no signs of concession from either side.
Notably, there is growing concern about the stability of the US Treasury bond market. There are indications that large hedge funds are liquidating massive interest rate swap positions, which include heavy bets on US Treasury bonds. This is partly due to expectations that the Trump administration would relax banking regulations related to holding Treasury bonds, which has not occurred.
Today’s gold price spike is driven by safe-haven demand, partly due to concerns about the US Treasury bond market.
In their report, brokerage firm SP Angel stated, “Gold is being supported by buying from China, fueled by fears of Renminbi depreciation amid the impact of tariffs and a prolonged deflationary environment, exacerbated by a slumping real estate market. However, concerns about the current level of leverage in the US Treasury bond market could also drive investors towards gold as a safe haven. Gold and Treasury bonds typically compete as safe-haven assets, with the latter usually favored when yields are higher. But if investors are worried about the stability of the US government bond market, gold could become the obvious alternative. When the Fed intervened in March 2020 by cutting rates by 100 basis points, gold prices subsequently surged by about 30% for the remainder of the year.” SP Angel further emphasized, “Keep a close eye on this development.”
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