Trade Tensions Flare Up Again... Gold Strengthens, Dollar Weakens

Korea Economic Daily

Summary

It was reported that the value of the dollar weakened due to intensified trade tensions between the United States and China.
It was stated that the international oil price and gold price surged significantly due to geopolitical risks and major wildfires in Canada.
It was reported that investors showed a preference for safe assets centering around gold, in line with risk aversion sentiment.

Dollar Index falls 0.6%

International oil up 2.9%, Gold up 2.5%

The value of the dollar weakened as trade tensions between the United States and China showed signs of worsening again. In addition, the geopolitical risk was highlighted as Ukraine attacked an airbase in Russia, causing both international oil prices and gold prices to jump sharply.

On the 2nd (local time), at the New York foreign exchange market, the dollar index, which shows the value of the dollar against the six major currencies, recorded 98.67, down 0.6% from the previous trading day. Concerns that expanded tariffs could lead to slower economic growth and inflationary pressure in the United States had an impact.

President Donald Trump visited the United States Steel Corporation mill on the 31st of last month and said, "We are raising the tariffs on steel and aluminum from 25% to 50%," and "the tariff increase will be implemented from June 4." On the 30th of the same month, China insisted that the United States had completely violated the US-China trade agreement reached in Geneva, Switzerland. In response, China said, "It is the United States that violated the agreement," raising objections.

As trade tensions resumed on top of increased geopolitical risk, the international commodities market also fluctuated. On this day, at the New York Mercantile Exchange, West Texas Intermediate (WTI) crude for July finished trading at $62.52 per barrel, up $1.73 (2.85%) from the previous day. Brent crude for July at London's ICE Futures Europe also ended at $64.63 per barrel, up $1.85 (2.95%).

Gold prices surged even more steeply. At the New York Mercantile Exchange, June gold futures rose 2.5% to $3397.20 per troy ounce. The analysis is that Ukraine's large-scale drone attack targeting the Russian mainland airbase heightened geopolitical tensions and pushed up gold prices. Peter Grant, chief metal strategist at Zanier Metal, explained, "President Trump's threat to expand tariffs and Ukraine's offensive increased geopolitical risk and stimulated investors' risk aversion."

It was also analyzed that the recent major wildfire in Alberta, Canada, raised concerns about disruptions in shale oil production, which further contributed to the rise in international oil prices. Reuters reported, "Wildfires in Canada are affecting oilfield production."

Sohyun Lee, Reporter y2eonlee@hankyung.com