The price of gold climbs to a fresh yearly high ($1555) amid growing tensions between the US and China, and current market conditions are likely to keep bullion afloat as there appears to be a flight to safety.

Gold prices may continue to exhibit a bullish behavior as China boosts tariffs on the US, with President Donald Trump responding by announcing that “starting on October 1st, the 250 billion Dollars of goods and products from China, currently being taxed at 25%, will be taxed at 30%.”

In addition, the “remaining 300 billion Dollars of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%,” and the growing threat of trade war may become a growing concern for the Federal Reserve as “trade policy uncertainty seems to be playing a role in the global slowdown.”

In turn, the Federal Open Market Committee (FOMC) may come under increased pressure to implement a rate easing cycle, but it remains to be seen if the central bank will reverse the four rate hikes from 2018 as Chairman Jerome Powell argues that monetary policy “cannot provide a settled rulebook for international trade.”

Nevertheless, Fed Fund futures continue to reflect overwhelming expectations for a 25bp reduction on September 18, with the figures now showing renewed speculation for a 50bp rate cut as the ongoing shift in trade policy dampens the outlook for the US economy.

Little signs of a US-China trade deal may push a growing number of Fed officials to change their tune, and the FOMC may continue to alter the forward guidance for monetary policy as “committee participants have generally reacted to these developments and the risks they pose by shifting down their projections of the appropriate federal funds rate path.”

With that said, falling US Treasury yields along with the inverting yield curve may push market participants to hedge against fiat currencies, and the risk of a policy error may keep gold prices afloat as there appears to be a flight to safety.

Sources: DailyFX