Gold Surges Past $4,000 on US–China Tensions (13 - 17 October)

The dollar index fell below 99 on Friday, pressured by rising geopolitical tensions and trade war fears after US President Trump canceled plans to meet China’s Xi Jinping and threatened steep new tariffs. Sentiment remained fragile, despite a slight improvement in US consumer morale.

Gold surged past $4,000, nearing its record high of $4,059, marking an eighth consecutive weekly gain. The 10-year US Treasury yield declined to a three-week low of 4.06%, erasing early-week gains as geopolitical uncertainty drove demand for safe havens.

The euro rebounded above $1.16, while the pound slid to a 10-week low near $1.328, and the yen pared losses but ended the week weaker amid coalition instability in Japan.

Market Drivers and Catalysts

• Currencies: Dollar falls on tariff threats; euro rebounds; pound pressured ahead of UK budget; yen unstable on political turmoil
• Commodities: Gold nears record on safe-haven flows; silver tests highs; oil falls on ceasefire and surplus outlook
• Fixed Income: US yields retreat on trade tension; gilt yields flat on budget caution; Bunds rally; JGBs hold near 17-year highs
• Macro events: US CPI, UoM sentiment, JOLTS job openings, FOMC minutes, Eurozone CPI
• Macro headlines: Trump cancels Xi meeting; tariff escalation; Israel-Hamas ceasefire approved; Komeito leaves Japan’s coalition

Fixed Income

• US: The 10-year Treasury yield dropped to 4.06%, its lowest in nearly three weeks, as renewed US–China trade war risks and geopolitical instability fueled safe-haven flows. President Trump threatened a “massive increase” in tariffs after China tightened rare earth export controls, prompting fears of global supply chain disruption. Earlier gains in yields were fully erased. Weak demand at Treasury auctions and a lack of fresh economic data due to the shutdown added caution.
• UK: The 10-year gilt yield was little changed at 4.72%, with markets on edge ahead of the November 26 budget. Finance Minister Rachel Reeves is expected to maintain fiscal discipline, potentially through higher taxes, as seen in her previous move raising employer contributions by £25 billion. Inflation remains elevated, and growth expectations for Q4 remain modest.
• Japan: The 10-year JGB yield hovered just below 1.70%, close to its highest since 2007, as investors weighed the implications of Komeito's withdrawal from the ruling coalition. The breakup ends a 26-year partnership and complicates Prime Minister-designate Sanae Takaichi’s policy agenda, which had included expansionary fiscal measures. Uncertainty over the BOJ’s rate path persisted.
• Germany: The 10-year Bund yield tumbled to 2.63%, the lowest since early August, amid mounting global trade war concerns and ongoing political uncertainty in France. President Macron is expected to name a new prime minister following Sébastien Lecornu’s resignation. Markets expect no near-term ECB easing, but geopolitical stress supported demand for Bunds.

Commodities

Gold surged past $4,000 per ounce on Friday, closing in on Wednesday’s record of $4,059, as investors sought safety amid renewed trade war threats, ongoing geopolitical risks, and expectations for further Fed rate cuts. The metal is up 52% YTD and ended the week with a 3% gain, its eighth weekly advance. Israel’s ceasefire with Hamas and expectations for cooler inflation have also helped drive flows into bullion.

Silver traded around $50 per ounce, just below Thursday’s $51.30 record, and is poised for its eighth weekly gain, up 70% YTD. The rally was supported by safe-haven demand, tight supply, and expectations of lower rates, as well as political uncertainty over Fed independence and long-term fiscal risks.

Currencies

• Dollar: The dollar index slid below 99, driven by President Trump’s cancellation of the US–China summit and plans to raise tariffs, sparking renewed trade war concerns. Sentiment was also shaped by the University of Michigan sentiment index, which was slightly better than expected but failed to lift the greenback amid heightened geopolitical risks.
• Euro: The euro rebounded above $1.16 after touching a two-month low earlier in the week, supported by dollar weakness and optimism over stabilizing Eurozone inflation. CPI rose to 2.2% in September, slightly above target, reinforcing the ECB’s cautious stance on policy easing. Political shifts in France added complexity, with Macron expected to avoid snap elections.
• Pound: The British pound fell to $1.328, a 10-week low, as markets grew wary of potential tax hikes in the UK’s upcoming November budget. Chancellor Rachel Reeves is expected to maintain fiscal restraint, echoing her earlier increase in employer social contributions. Inflation is expected to rise to 4%, twice the BoE’s target, keeping pressure on UK assets.
• Yen: The yen ended the week near 152.7, after briefly hitting 153.2, weighed by political turmoil following Komeito’s exit from Japan’s ruling coalition. The move complicates PM Takaichi’s leadership confirmation and fiscal plans. The yen’s weakness persisted despite the BOJ’s hawkish tone and elevated long-term yields.

Macro Calendar Highlights (Times in GMT)

• 14:00 – US Michigan Sentiment (Prelim Oct)
• 12:30 – US FOMC Minutes (Sep)
• 08:00 – Eurozone CPI YoY (Sep)
• 12:30 – US JOLTS Job Openings (Aug)
• All week – Political developments: Japan coalition, France PM appointment, US–China trade rhetoric