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Gold is soaring because it's a 'very good hedge against currency manipulation'

Jonathan Garber

Gold has soared in recent weeks, and it showing no signs of letting up anytime soon.

The precious metal was trading near $1,420 an ounce on Aug. 1 but had surged by more than eight percent to nearly $1,540 by Monday as the U.S. and China swapped blows in a trade war that seems to heats up, cools down, and heats up again each day.

“This escalation increases the risk of a deeper, more protracted slowdown in global growth and greater central bank easing, which would push down global bond yields and raise market volatility,” analysts at UBS’ Chief Investment Office wrote in a note to clients out Sunday.

On Aug 1., President Trump said the U.S., beginning next month, would place a 10 percent tariff on $300 billion worth of Chinese goods, adding they could go "well beyond 25 percent" if necessary. Beijing responded by letting its currency, the yuan weaken below seven per dollar. for the first time in over a decade. The Trump administration then delayed the tariffs on about 60 percent of those goods until Dec. 15.

“I think gold is a very good hedge against currency manipulation,"  Jeff Sica, Founder, President and Chief Investment Officer of Circle Squared Alternative Investments said today on "Varney & Co" airing on FOX Business, "The more the governments mess up, the more gold becomes attractive to me. I do not trust governments and the way they handle currency.”

Both the U.S. and China on Friday escalated the more than year-long trade war between the world’s two largest economic powers. Beijing hit the U.S. with tariffs on $75 billion of goods and reinstated taxes on others. That prompted President Trump to respond by raising existing tariffs on Chinese goods.

The trade war is just one concern of central banks around the world, which have also been cutting interest rates to grapple with a slowing global economy.

The economies of the UK, France, Germany and Italy are teetering on the brink of recession, and China’s gross domestic product is growing at its slowest pace in 27 years.

And in the U.S., the yield curve earlier this month inverted for the first time since the financial crisis, stoking fears a recession may be on the horizon. Such an event has preceded the last seven recessions, spanning more than 50 years.

All of that is positive for gold, which is why UBS is raising its price target.

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“We have said before that if we observed a further escalation in the US-China trade war, it would heighten the risk of an economic slowdown and, as a result, further central bank cuts, and we could see gold prices trading between USD 1,600/oz and USD 1,700/oz,” UBS’ analysts said.

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