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Gold Pares Early Advance as Trade Hopes Boost Risk Assets

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08/13/2019 | 12:17pm EDT

By Amrith Ramkumar

Gold prices erased an early rally and fell Tuesday after the U.S. Trade Representative said it would delay some tariffs on Chinese imports and China's Xinhua News Agency reported that officials from both sides plan to continue talks in two weeks.

Gold for December delivery, the most-active futures contract, was recently down 0.3% at $1,512.40 a troy ounce on the Comex division of the New York Mercantile Exchange. The drop came after prices had rallied more than 1% earlier in the U.S. trading session, only to fall nearly 2% following the latest trade developments.

The volatility coincided with advances by stocks and bond yields after the U.S. said it will delay some tariffs on Chinese imports until Dec. 15 on items including cellphones and laptops. The duties had been set to take effect Sept. 1. After they were announced earlier this month, gold rallied to six-year highs with investors worried the tariffs would limit consumer spending and limit economic growth.

Tuesday's moves also came following a report from Xinhua that Chinese Vice Premier Liu He recently spoke with U.S. officials and the two sides plan to continue discussions in two weeks.

The swings were the latest example of trade-related market volatility and were a negative for investors who had piled into gold recently, though prices are still up about 17% for the year.

Hedge funds and other speculative investors had pushed net bets on rising prices to their highest level since July 2016 during the week ended Aug. 6, the latest Commodity Futures Trading Commission figures show. Data for the period ended Tuesday will be released on Friday. Bullish wagers outnumbered bearish ones by 285,082 contracts during the most recent week, a 23% increase from the prior week.

Despite Tuesday's drop, gold has also benefited from worries about a slowing world economy that have pushed central banks around the world to lower interest rates. Because the metal offers no yield, it becomes more attractive to yield-seeking investors when rates decline.

Expectations for further declines in global bond yields and continuing political uncertainty are also fueling wagers that gold can extend its sharpest move higher in years.

"There is much to suggest that the gold-price rally will continue," Commerzbank analysts said in a note.

In another sign of investor anxiety about the world economy, hedge funds and other speculators pushed net bearish bets on the industrial metal copper to a multiyear high during the most recent week, the CFTC figures show. Copper prices are tied to the trajectory of global growth and economic activity in China -- which accounts for nearly half of world consumption -- because the metal is critical to construction and manufacturing.

Copper hit a two-year low last week with analysts expecting trade uncertainty and a slowdown in factory activity around the world to crimp demand.

Prices rebounded 1.6% to $2.63 a pound Tuesday on hopes that a trade compromise will boost the outlook for consumption.

Elsewhere in commodities Tuesday, U.S. crude oil added 4.4% to $57.33 a barrel on the New York Mercantile Exchange, climbing alongside other risk assets on hopes that thawing trade tensions could lift the outlook for fuel demand. Fears about softening consumption and steady supply resulting in a glut have swung oil prices in recent months.

Brent crude, the global price gauge, rose 4.8% to $61.41 a barrel on the Intercontinental Exchange.

"Finally, suddenly, we see some positive news on the trade war and it's a shot in the arm for oil markets," said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

-- David Hodari contributed to this article.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
COMMERZBANK AG 5.95% 5.001 Delayed Quote.-13.52%
CRB COMMODITY INDEX 0.10% 195.01 End-of-day quote.0.00%
GOLD -0.87% 1513.26 Delayed Quote.19.06%
GROUPE SEB 1.44% 133.7 Real-time Quote.18.53%
INTERCONTINENTAL EXCHANGE INC 1.29% 91.67 Delayed Quote.20.14%
LME COPPER CASH -0.62% 5696.5 End-of-day quote.-2.44%
LONDON BRENT OIL 0.45% 58.66 Delayed Quote.7.76%
SILVER -1.09% 17.099 Delayed Quote.11.85%
WTI 0.07% 54.77 Delayed Quote.20.64%
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