Higher geopolitical tensions support gold prices, for now

The further deterioration in the US relationship with Russia and North Korea this week has supported the prices of precious metals. A weaker dollar, in light of President Trump’s comments about the risk to the US economy from a rise in the dollar, has also helped to boost the price of gold. We think that gold prices could fall back in the near term if tensions cool, as seems likely, and that they will continue to fall as the Fed tightens policy later this year. Elsewhere, strong import data from China boosted the prices of some industrial metals at the end of the week. Turning to next week, China is set to release its first estimate of Q1 GDP growth on Tuesday. It is likely to be strong, at around 6.8%. That said, the industrial output and fixed investment data for March, also out on Tuesday, will be more informative given that they should be free of the seasonal distortions associated with the Chinese New Year. We expect to see signs that the economy was beginning to lose momentum after a strong start to the year. Later in the week, the flash Markit manufacturing PMIs for the euro-zone, Japan and the US will give us a clearer picture of activity and demand in the more developed economies.