While worries over global economic growth increase due to escalating trade war between the US and China, gold prices edge up on Monday after having weekly gain last week due to finding support from weakening dollar following weak US data. Moreover, as weakness in risk sentiment persists, there are increasing number of bets over Fed’s possible decision to cut the rates however some says this is not really a good idea since it will likely show that the economy weakens. In addition to this, J.P. Morgan downgraded US second quarter growth forecast due to trade war, slowing global economy and decreasing business sentiment. In the meantime, it was stated that trade talks between the US and Japan were good and negotiations would continue.
Gold reached its weekly gain last week by finding support from decreasing dollar due to weak US data, after having trouble of upside movement despite falling risk sentiment. Yellow metal edged up on Monday amid trade escalation and falling risk sentiment.
As of 15:14 GMT+3, spot gold was trading at $1,285.68 an ounce while dollar index was at 97.72. US 10-year Treasury yield was at 2.324. US markets are closed today due to Memorial Day.
Phillip Futures analyst Benjamin Lu said on Reuters that US sanctions on Huawei really escalated trade tensions while adding gold reversed its recent losses amid shaky risk sentiment in the markets.
As expectations on escalated trade tensions to deepen increased, Bank of America Merrill Lynch head of strategy Mark Cabana said markets were worried that we were moving towards worst case scenario and in this case, Fed would likely react to offset the situation and prevent a recession. However, Morgan Creek Capital Management CEO Mark Yusho said if Fed officials were to cut the rates, it would point out a weakening economy.
In a report released by J.P. Morgan economists, it was stated that J.P. Morgan downgraded US second quarter growth forecast to 1% from 2.25%. Report said key risks were trade war uncertainty, weak business sentiment and slowing global economy while underlining second quarter growth forecast was downgraded due to weak durable goods orders and retail sales in April which showed economic growth would be undermined in the second quarter comparing to the first quarter’s surprising performance.
In the meantime, it was announced that trade talks at the weekend between the US and Japan were good and negotiations were planned to continue. US President Donald Trump said his goal was to maintain trade balance between two countries while adding he hoped a trade deal would be reached soon. Moreover, Trump said big steps on a possible trade deal would be taken after Japan’s election in July and added “we will be announcing some things, probably in August, that will be very good for both countries.”