Gold prices jump on trade war escalation with Mexico

The U.S. “intending to impose trade tariff on Mexico, Germany and other eurozone nations apart from China will be bullish for gold,” said Chintan Karnani, chief market analyst at Insignia Consultants.

Also, the “investment world is filled with speculation that China is preparing to retaliate over the Huawei issue. Rare earth exports to [the U.S.] could be stopped in extreme circumstance,” he said.

Gold for August delivery on Comex GCM19, +1.02% rallied by $16.20, or 1.3%, to $1,308.60 an ounce, putting the metal on track for the highest finish for a most-active contract since April 10, FactSet data show. The gains put prices, based on the most-active contracts, on pace for nearly 2% weekly gain, and a 1.8% advance for the month.

July silver SIN19, +0.61% meanwhile, added 16.4 cents, or 1.1%, to $14.655 an ounce, and was on pace for a weekly rise of 0.7%, but traded down 2.2% for May.

The moves for the metals come as President Donald Trump announced in a tweetthat the U.S. would impose a 5% tariff on all goods from Mexico until that country stops the flow of illegal immigrants into the country. He said the tariffs will rise to 10% on July 1 if the crisis persists, and by another 5% for every successive month, up to 25% by Oct. 1.

The announcement comes amid reports from Chinese state-owned media threatening fresh retaliatory measures in Beijing’s tariff spat with the U.S. That action comes as data from the second-largest economy in the world showed manufacturing activity slipped into contraction. China’s manufacturing purchasing managers’ index dropped to 49.4, with any reading below 50 reflecting contracting conditions.

Worries about intensifying trade clashes have been a key support for gold prices over the past few weeks, driving demand for gold and government debt alike.

The exchanged-traded gold fund, the SPDR Gold Shares GLD, +1.04% has

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