After opening the week with a weak start and falling below $1,500 an ounce on Monday, gold prices continued to weaken on Tuesday due to falling safe haven demand with optimism regarding trade talks and rising expectations that central banks would remain accommodative. US Treasury Secretary Steven Mnuchin said yesterday that there was progress in trade talks and added that sides had “conceptual” agreement on enforcement mechanism. In the meantime, Citigroup said in a research report that gold could increase up to $2000 an ounce due to global uncertainties and ongoing vulnerability in the markets. On economic data side, data released today showed Chinese consumer prices increased more than expected in August while producer prices declined the sharpest in three years.
As yields slightly recovered due to rising risk sentiment, gold prices continued to fall on Tuesday as safe haven demand declined.
As of 15:02 GMT+3, spot gold was trading at $1,492.27 an ounce while dollar index was up to 98.44. US 10-year Treasury yield inched up to 1.646.
Phillip Futures said in a note that risk sentiment currently increased due to reviving US-China trade talks alongside with accommodative monetary policies by central banks.
US Treasury Secretary Steven Mnuchin said on Monday that there was progress in trade talks while adding that sides had “conceptual” agreement on enforcement mechanism. Mnuchin said, trade talks were ongoing with middle-level talks and would continue with high level talks in early October when China’s Vice Premier Liu He was scheduled to visit the US. Mnuchin also stated that it was a positive sign that each side showed their willingness to continue negotiations but underlined US President Donald Trump would have no problem keeping heavy tariffs on China if sides could not reach a trade deal.
In the meantime, senior technical strategist Shyam Devani said in a research report by Citigroup that the ratio between gold and S&P 500 was testing pivot point and there could a be a rally that would carry gold up to $2000 an ounce if that point was to break upside. Devani also said global uncertainties continued to support safe haven demand while adding equity markets remained vulnerable especially after yield curves inversion.
On economic data side, data released today showed that Chinese consumer prices increased above expectations in August while producer prices declined the sharpest in three years. According to the data, consumer prices increased by 2.8% annually and 0.7% on monthly basis while producer prices fell by 0.8%. As ongoing pressure on manufacturing sector due to weakening foreign demand amid trade war with the US as well as global economic slowdown remained, producers had to cut from their margins, which was reflected in falling producer prices.