Gold traded quietly during a holiday lulled session as traders are trying to gauge the impact for gold of rising geopolitical tensions in Hong Kong.

For gold, what is critical about China’s stance on Hong Kong security is its impact on US-Sino relations. Gold tended to rally through 2019 when relations between the two nations deteriorated while pulling back when they seemed to improve.

There are other geopolitical hotspots. The US has warships in the vicinity of Iranian freighters headed for Venezuela this weekend, which is under embargo.

There are more than enough hot spots in the world to keep a bid under gold despite the slightly stronger dollar, which is competing for safe-haven flows.

Arguably, however, the clouds of dust in Hong Kong have settled quicker than anyone had expected, which isn’t so bullish for bullion over the short term.

Much local buying of late was done as a hedge for a rapid escalation of trade tensions between the US. And China. And so far, that has not happened.

Ultimately over the short-term and in the absence of a secondary virus outbreak, gold’s latest foray higher could be met with resistance amid renewed economic optimism around economies re-opening and a potential vaccine.

The Yuan

Deteriorating US-China relations are a crucial driver of China abandoning its growth target, and trade war risks will continue homing in on Hong Kong in the short term.

Even with the dust settling quicker than expect over Hong Kong, Forex markets will continue to price in trade war risk premium in both CNH and HKD and should keep both currencies on the defensive for some time.

The Euro

Despite the mutualisation surprise, the Euro is getting weighted down by US dollar safe-haven flows. And to a large extent, China’s abandoning its GDP target and not providing the deluge of the stimulus the market expected. Still, on the straight-up quasi-fiscal union trade, bears persist.

Debt mutualisation is something the market has been craving basically since the creation of the currency. And at the end of the day, getting all countries on board could still be a pipe dream.

The Malaysian Ringgit

The Ringgit is caught between the tug of war of stabilising oil prices and heightened US-China trade tension. Sadly, the later will be a significant concern going forward since President Trump has made it clear that his election campaign will be laced with anti-China rhetoric. He and the US administration China hawks perceive China was less than transparent in how they handled the coronavirus crisis.

FX & Gold markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp