In an environment with ongoing trade and political uncertainty, gold fell below $1,500 as US dollar drew safe haven demand by investors and reached multi-week highs. Political uncertainty increased again in the US with a whistle-blower report stating that US President Donald Trump took advantage of his position for his own interests and White House tried to “lock down” evidences while on the other hand mixed signals on trade front dashed hopes for a deal. On economic data side, data released today showed industrial profits in China fell in August due to weak demand and trade war while in Europe, economic sentiment in Eurozone fell to the lowest since 2015.
After its sharp fall following the release of phone call transcript which calmed down political tensions in the US, gold prices continued to weaken and fell below $1,500 on Friday amid ongoing political and trade uncertainty as US dollar drew safe haven demand and got stronger against major currencies.
As of 15:58 GMT+3, spot gold was trading at $1,495.34 an ounce while dollar index was at 99.08. US 10-year Treasury yield was up to 1.701.
Anand Rathi Shares & Stock Brokers commodity analyst Jigar Trivedi said on Reuters that alongside with better than expected US data such as new homes sales, stronger dollar weighed on gold prices.
Political tensions due to official impeachment process against US President Donald Trump, which calmed down after the release of phone call transcript as there was some ambiguity that it would lead to impeachment of the president, escalated again after a whistle-blower report said President Trump took advantage of this position to gain advantage ahead of 2020 presidential elections and White House tried to “lock down” evidences.
On trade front, mixed signals are dashing hopes for a deal between the US and China. According to Bloomberg, the US will unlikely to extend waivers that allowed American companies to supply Chinese tech company Huawei. This, once again, underlines that technology transfer is still one of the sticking points preventing a trade deal as sides will be meeting on October 10-11 in Washington.
On economic data side, data released today showed industrial profits in China fell in August due to weak demand and trade war. Contraction in domestic and foreign demand due to economic slowdown and trade war forced factory gate prices to fall and this led to 2% decline in industrial profits in August. As Chinese economy continues to weaken despite stimulus so far, Beijing is expected to introduce more stimulus package but monetary stimulus will likely be limited since it would be risky to increase already high level of debt and cause property bubble.
In Eurozone, data released today showed economic sentiment declined to its lowest level since February 2015 in September. According to the data, economic sentiment fell to 101.7 from 103.1 mostly due to weakness in industrial sector as industrial sentiment fell to -8.8 from -5.8. Moreover, falling sales price expectations increased worries on lower inflation. Only positive data came from services sector as sentiment increased to 9.5 from 9.2 after falling for three consecutive months, which calmed worries that weakness in industrial sector would spill over to services sector which is crucial for Eurozone economy.