The EU, Canada and Mexico all announced retaliatory tarrifs on certain imports from the US this week. Although we doubt that this is the start of a full-blown trade war, the risk of one is greater now than it has been for many years. A resultant slowdown in global trade growth would weigh on demand for industrial commodities. Meanwhile, China’s imports of commodities rebounded in May, with the exception of oil.
Turning to next week, the outcome of the G7 meeting, taking place today and over the weekend, is likely to dominate sentiment in the first half of the week. Investors will be watching for any signs of easing, or worsening, tensions between Donald Trump and other world leaders. That said, Trump is leaving the summit early to prepare for his meeting with North Korean leader Kim Jong Un, scheduled for Tuesday. Any significant progress in negotiations between the US and North Korea would lessen geopolitical tensions and could weigh on the price of gold. There is also the Fed policy meeting on Wednesday in which we expect the Fed to hike interest rates by another 25bp. However, given that this outcome is largely priced in, we doubt there will be much impact on gold prices.
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