While slowdown in Eurozone economy deepened with the data released on Friday, growth concerns rose as U.S. manufacturing data was worse than expected and Japan’s manufacturing PMI could not recover from its weakness in contraction area in March. Thus, gold holds firm due to increasing safe haven demand, after having third straight weekly gain last week. By the way, inversion of short and long term yields in the U.S. on Friday increased recession concerns and now investors are not so confident about the health of the U.S. economy. In the meantime, Ifo Business Climate Index, which measures business expectations for the next 6 months in Germany, recovered from more than four year low and increased above expectations on March.
While global economic slowdown has become evident with the data released on Friday, gold prices hold firm on Monday as investors, who are fleeing from risky assets, are turning towards safe havens.
As of 14:29 GMT+3, spot gold was trading at $1,317.47 while dollar index was at 96.61. U.S. 10 year yield edged higher to 2.460.
According to manufacturing data released on Friday, slowdown has become evident, especially in the Eurozone. Eurozone manufacturing PMI decreased to 47.6 while contraction in German manufacturing deepened and France’s manufacturing fell down to contraction area below 50 in March. On the other side of the world, Japan’s manufacturing has not changed and stayed at 48.9 while U.S. manufacturing PMI was lower to 52.5. As global growth concerns rose due to these recent readings, gold price is expected to increase significantly if data remains weak further.
By the way, U.S. 10-year yield was below 3-month yield on Friday, for the first time since 2007. While inversion between long term and short terms yields is seen as a sign of upcoming recession, investors got worried about the health of the U.S. economy. U.S. President Donald Trump’s economy adviser Larry Kudlow also stated that this inversion should be closely watched as a reliable indicator of recession. While Wall Street watches 2-year and 10-year yields to foresee a possible recession, Federal Reserve prefers 3-month and 10-year yields.
Some analysts think recession risk due to inverted yields will make markets to price Federal Reserve cutting rates while others say this inversion between 3M/10Y yields was not significantly high enough to think it indicates a possible recession. The indicator successfully foresaw the last seven recessions including the global recession in 2008.
In the meantime, according to data released in Germany today, Ifo Business Climate Index, which measures business expectations for the next six months, increased to 99.6 in March. Germany’s business confidence recovered from February’s low of 98.5, which was the lowest since November 2014, after the economy was hit by low demand due to trade war and global slowdown and manufacturing has shown the weakest performance since 2012 in March.