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Gold reaches record highs on US tariffs, while Asia stocks fall

Gold reaches record highs on US tariffs, while Asia stocks fall

Asian stocks dropped on Friday, with South Korea and Japan seeing heavy selling. Meanwhile, gold reached a new record high after the latest tariff salvo by U.S. president Donald Trump raised investor fears of a full-blown trade war.

Trump has moved forward with a 25% auto import tariff that will kick in next Monday. This move has drawn fierce criticism from politicians, industry executives and car manufacturers around the world.

Trump's escalation of the global war on trade that he started upon regaining power has shocked the markets. Shares of automakers around the world have been hit especially hard.

In Asia, Japan’s Nikkei Index fell by more than 2% due to a sharp decline in Toyota and Honda. South Korea's benchmark stock index hit a new low in two weeks and fell lastly by 1.3%. Both countries' economies are based on the auto industry.

Hong Kong's Hang Seng Index was 0.6% higher. This is a result of the threat to auto tariffs being largely ignored. Trump said that he was willing to lower tariffs against China in order to reach a deal with ByteDance, the Chinese parent company of TikTok to sell the app.

Fred Neumann is the chief Asia economist for HSBC. He said that "U.S. auto import tariffs are not a big surprise" as they have been discussed for some time.

To some extent, producers are able to shift their supply chains and production sites in order to minimize these effects. They may also pass on some of the cost increases to U.S. customers, since tariffs are a problem for nearly all producers.

Volvo Cars and Mercedes-Benz, as well as Volkswagen's Audi, Hyundai, and Volvo Cars have all already announced that they will be moving parts of their production. Ferrari, which produces all its cars in Italy said that it would increase prices by up to 10% for some models.

Now, the focus is on the reciprocal tariffs that will be announced by the U.S. on April 2. Trump said the measures might not be like-for-like levies, as he had pledged to impose.

"Not surprisingly, the tariff talk is resulting in another round of risk-off ... as traders try to ascertain the implications, but generally conclude that tariffs will be both growth-restraining and inflation-producing," said Thierry Wizman, global FX & rates strategist at Macquarie.

The dollar is headed for a drop in the next quarter as concerns about tariffs impacting the U.S. economy weigh on the markets. The euro was stable at $1.07942, and on track for a 4% increase in the period January-March.

Early trading saw the yen slightly stronger, at 150.76 dollars per dollar. This was on track for a gain of nearly 4% against the greenback during the first quarter. Traders bet that the Bank of Japan would raise interest rates once again.

The data released on Friday revealed that core consumer inflation in Tokyo increased in March and remained above the target set by the central bank due to steady increases in food prices. This kept the market's expectations for a rate hike in the near future alive.

DBS's strategists predict a near-term consolidation of the yen. They believe that it is trapped between trade risks, and rising inflation.

Gold prices reached a record high in commodities on Friday, as the threat from trade wars prompted a rush to the metal of safety. Gold spot was up last by 0.58% to $3,073.31 an ounce.

Gold has risen by more than 17% during the first three months of this year. It is on track to have its best quarter since 1986.

Oil prices were stable as traders assessed the tightening crude supply and new U.S. Tariffs, along with their effect on global economy.

Brent crude futures fell 0.07% to $73.98 per barrel. U.S. West Texas Intermediate Crude futures fell 0.07% to $69.87. (Reporting and editing by Edmund Klamann; Ankur Banerjee)

(source: Reuters)