Gold prices fell following Fed officials including Fed Chair Jerome Powell dashing quick rate cut expectations yesterday after yellow metal hit 6-year high by finding support from dovish central banks and geopolitical tensions. Fed Chair Jerome Powell underlined Fed’s independence and stated monetary policy would not be affected by political pressure and market expectations while adding Fed officials had been discussing whether trade dispute with China would require a rate cut. St. Louis Fed President James Bullard said US economy was not in that bad situation to justify a 50 basis point rate cut but 25 point rate cut would be appropriate. In the meantime, a trade deal coming out of Trump-Xi meeting at G20 summit this week is seen unlikely but it is highly possible that two sides will agree on resuming trade talks.
Gold prices fell quickly after hitting 6-year high at $1,438 on Tuesday as Fed officials’ less dovish than expected statements yesterday dashed hopes for a quick rate cut in July, however yellow metal succeeded to stay above $1,400.
As of 15:31 GMT+3, spot gold was trading at $1,409.99 an ounce while dollar index increased to 96.27. US 10-year Treasury yield recovered slightly and was up to 2.016.
Expectations for a quick rate cut had risen following Fed signalling a rate cut after the FOMC meeting last week, however statements by Fed officials including Fed Chair Jerome Powell yesterday seem to be taken less dovish than expected by markets.
Powell stressed Fed’s independence while stating that monetary policy was not affected by political pressure. He said, the central bank was “insulated from short-term political pressures” while underlining Congress decided Fed to be independent due to “the damage that often arises when policy bends to short-term political interests.” Regarding the economy, Powell pointed out downside risks and uncertainty as he said the incoming data raised concerns about the strength of the global economy while adding monetary policy changes will be made based on data and it was important not to overreact to temporary things in the short-term. Powell also said Fed officials had been discussing whether trade dispute with China alongside with tame inflation would require a rate cut.
St. Louis Fed President James Bullard also made a speech yesterday and said 50 basis point rate cut would be overdone as he said US economy was not in dire situation to justify that but he would be willing to go 25 basis point rate cut.
In the meantime, a trade deal is not expected following Trump-Xi meeting at G20 summit this week while sides could agree on resuming talks. An official familiar with trade talks said to Reuters that two sides could come to a decision not to impose additional tariffs on each other as a sign of good will while adding the US wanted China to come back the table and keep the promises it made before talks broke down. However, China insists on requesting mutual concessions in the trade talks which is expected to lead to a trade deal that is beneficial for both countries’ interests. China also requests current tariffs to be lifted while Washington does not accept any conditions on its tariff use. In this case, the best possible outcome of the meeting would be sides agreeing on suspending additional tariffs indefinitely and decide to resume talks while in the worst case scenario, sides would continue imposing additional tariffs which would, to some, end trade talks once again and for all and later on would lead the world economy into a recession.