After having weekly loss last week due to rising risk sentiment, gold prices inched up on Monday as on one side, supported by weak economic data as well as low yields, and on the other side, pressured by recovering risk sentiment due to central banks all around the world turning dovish. As China’s central bank announced last Friday that it would cut required reserve ratios once more this year, Federal Reserve and European Central Bank are also expected to ease their monetary policy this month, which increased risk sentiment and weighed on yellow metal. On economic data side, US economy added less jobs than expected in August while in China, exports declined in the same month due to trade war and imports continued to fall. Following weak factory orders and industrial production in July, trade data released today in Germany showed exports unexpectedly increased in July while exports declined.
Resolved global uncertainties weighed on gold prices last week alongside with Chinese central bank’s decision to cut reserve requirement ratios which increased risk sentiment but gold kept tight and inched up on Monday.
As of 15:30 GMT+3, spot gold was trading at $1,512.69 an ounce while dollar index was down to 98.32. US 10-year Treasury yield was up to 1.596.
Fitch Solutions said in a note that central banks remained dovish as global economy slowed down and this supported the precious metal while adding that the dynamic was exacerbated by global recession fears.
China’s central bank said last Friday that it would cut required reserve ratios (RRR) once more this year. According to statement, RRR will be cut by 50 basis point for all banks and an additional 100 basis point cut will be applied for qualified commercial banks. First cut will take place on September 16 and the second one will be applied in two batches, on Oct 15 and Nov 15. Thus, liquidity will increase by 900 billion yuan ($126 billion) however this is expected to be far from enough to stabilize the economy as investments have been hit hard by global economic slowdown and trade war with the US.
Federal Reserve and European Central Bank are also expected to ease their monetary policy this month by cutting the rates to support slowing economy. Fed Chair Jerome Powell reiterated last Friday that US central bank would act as appropriate to sustain economic growth.
On economic data side, data released in the US last Friday showed US economy created less jobs than expected by adding 130,000 jobs in August while wage increase rose to 0.4% monthly and 3.2% annually, which increased expectations that consumer spending would continue supporting US economy.
In China, data released on Sunday showed exports unexpectedly contracted in August while imports continued to decline. According to the data, exports declined 1% in August while contraction in imports were 5.6%. As the decline in exports was mainly caused by 16% decline in exports to the US, weaker yuan was not effective enough to compensate US tariffs, on the contrary to expectations, and weak global demand continued to weigh on Chinese exports.
Following weak factory orders and industrial production, data released today in Germany showed exports unexpectedly increased in July by 0.7% and imports declined by 1.5%. Even though this indicates German economy somehow made a strong start to the Q3, risk of another contraction in the Q3, thus risk of going into a recession following the contraction in the Q2, still remains.