Gold continues to fall amid trade optimism ahead of G20 summit after slipping from 6-year high following Fed officials’ less dovish than expected statements, however yellow metal still manages to hold above $1,400. While Trump-Xi meeting at G20 is planned to take place on Saturday, trade optimism rose over a possible solution to trade dispute between the US and China following news from South China Morning Post stating that two sides reached a tentative agreement that would prevent additional US tariffs and resume trade talks. Regarding Fed’s monetary policy, San Francisco Fed President Mary Daly said there might be an argument for Fed to provide more stimulus due to low inflation pressures and uncertainty around US trade policies. In the meantime, investment strategist Ivan Martchev said Fed might cancel rate cuts if there was a trade deal with China.
Gold prices continued to fall on Thursday following trade optimism ahead of G20, after yellow metal slipped from 6-year high as Fed officials dashed hopes for a 50 basis point rate cut.
As of 15:30 GMT+3, spot gold was trading at $1,406.09 an ounce while dollar index was at 96.21. US 10-year Treasury yield was down to 2.040.
US President Donald Trump and Chinese leader Xi Jinping will meet on Saturday at G20 summit in Japan. While trade dispute between two countries persist, South China Morning Post said sides agreed on a tentative truce that would suspend additional US tariffs and resume trade talks. So it is highly possible that there will be a truce after the meeting while noting President Trump can still change his mind at any moment. In addition to this, it was stated that it would be disappointing for Trump if a decision to resume trade talks was the only outcome from the meeting as he had been trying to bring China back to the table and insist on Chinese officials keeping their promises they made before talks broke down. On the other hand, Eurasia Group analyst Jeffrey Wright said both countries were slowing and underlined that even though waiting for 2020 election for a trade deal seemed to be an attractive option, China was worried US companies would not be that patient and move their supply chains to other Asian countries.
Regarding Fed’s monetary policy, San Francisco Fed President Mary Daly said yesterday that there might be an argument for Fed to provide monetary stimulus due to low inflation pressures and uncertainty around US trade policies while stating next couple of weeks would be crucial whether a rate cut would be necessary as a precaution to economic slowdown.
OANDA analyst Alfonso Esparza said on Reuters that even though Fed signalled a rate cut, Fed might hold the rates steady if economic indicators rebounded in the short term especially after Fed officials dashed hopes for a 50 basis point rate cut.
In the meantime, investment strategist Ivan Martchev wrote on MarketWatch that American economy was not in that bad situation given good performance of “junk bonds” while adding what had been happening recently was due to fading impact of tax cut and this was the case in the past as well by pointing out weak economic performance in early 2004 following the 2003 Bush tax cut. Martchev also said a trade deal with China would help economic recovery and added the markets expected four 25 basis point rate cut through 2020 while underlining Fed might not go for four rate cuts due to US economic recovery in case of a trade deal,