After falling as low as $1,400 an ounce following Fed, gold prices rose sharply due to increasing trade tensions as US President Donald Trump announced 10% tariff on Chinese goods worth $300 billion as of September 1, however yellow metal was lower on Friday due to profit taking. As US officials returned from China, President Trump accused China of reneging from its commitment to buy American agricultural products while expectations increased additional tariffs will likely force Federal Reserve to cut the rates in September as it spreads worries on the health of the global economy. In the meantime, trade dispute between Japan and South Korea also deepened further as Japan excluded South Korea from its preferred trade partners list. In Eurozone, where recent data showed inflation and manufacturing sector weakened further in July, data released today showed producer prices declined sharply in June while retail sales increased above expectations. In addition to this, US data showed non-farm payrolls increased as expected while wage growth edged up in July.
Gold prices increased up to $1,446 an ounce yesterday due to rising trade tensions following US President Donald Trump’s announcement that he would impose additional tariffs on Chinese goods, however yellow metal declined on Friday as investors took profits from the rally.
As of 15:58 GMT+3, spot gold was trading at $1,433.87 an ounce while dollar index was down to 98.27. US 10-year Treasury yield was also down to 1.87.
Nirmal Bang Commodities head of research Kunal Shah said on Reuters that trade tensions between the US and China pushed gold prices higher while adding outlook was positive for yellow metal but there was a strong resistance at $1,450.
President Trump accused China of reneging from its commitments to buy American agricultural goods and announced that he would impose 10% tariffs on Chinese goods worth $300 billion, which haven’t been subject to tariffs before, from September 1 as talks continued. Trump also said he could increase current 25% tariffs even further if there was no progress in trade talks. As a response to that, China Foreign Ministry stated China would have to take necessary counter measures if additional tariffs were to be imposed.
Alongside with additional tariffs having a direct impact on consumer spending, it will weigh on already slowing global economy while it also increased expectations that Fed will likely cut the rates in September. CME Group’s FedWatch Tool was indicating 56% change of a rate cut in September but it increased to 91% following trade tensions.
In the meantime, trade dispute between Japan and South Korea deepened as Japan excluded South Korea from its preferred trade partners list. In its recent announcement, Japan also stated it would tighten export controls as of August 28 which is expected to hit South Korea’s vital tech exports and this would later on lead to further deterioration in the global supply chain that has already been dashed by US-China trade war.
Data released in Eurozone showed today that retail sales increased above expectations in June while producer prices fell sharply, reflecting weaker consumer prices in July. Retail sales increased by 1.1% monthly and 2.6% annually while producer prices declined by 0.6% on monthly basis while increase in annual producer prices fell to 0.7% from 1.6%.
US jobs data released today showed non-farm payrolls increased by 164,000 in July as expected, indicating strong labor market while wage growth rose more by 3.2% comparing to 3.1% in previous month.