As trade dispute between the US and Mexico comes to an end, gold falls on Monday after hitting the highest level since April 2018 at $1,348 and closing the week at $1,340 last week due to escalating trade tensions and worries over global growth. US President Donald Trump said on Friday that the US and Mexico reached a deal regarding illegal immigration and planned tariffs on Mexican goods would be suspended indefinitely. By the way, as expectations on Fed’s rate cut increased due to weak employment and wage growth data released on Friday, consumer inflation data due to be released this week will be under spotlight. In the meantime, Chinese imports declined more than expected in May while exports increased slightly in opposition to expectations that it would decline, according to data released on Monday.
After it hit the highest level since April 2018 at $1,348 an ounce last week due to trade war and global growth concerns, gold prices fell sharply on Monday following the news that trade dispute between the US and Mexico came to an end however that fall was limited by expectations that Fed would cut rates.
As of 15:33 GMT+3, spot gold was trading at $1,327.82 an ounce while dollar index increased to 96.87. US 10-year Treasury yield was also up to 2.13 due to increasing risk sentiment.
US President Donald Trump announced on Friday that the US and Mexico reached a deal regarding illegal immigration issues and added planned tariffs on Mexican goods would be suspended indefinitely. Mexico made commitments to take precautions to prevent illegal migration and thus it was prevented for trade war to open a new front and widen geographically. Otherwise, 5% tariff on Mexican goods was planned to take effect on Monday.
Expectations that Fed would cut rates increased due to growth concerns following weak employment and wage growth data released on last Friday. This is why consumer inflation data due to be released on Wednesday will be under spotlight as it will likely make it easier for Federal Reserve to cut rates if it signals persisting weak inflation. Fed Chair Jerome Powell said last week that appropriate monetary policy approach would be followed to maintain sustainable growth.
According to data released in China today, imports declined more than expected in May while exports slightly increased contrary to expectations. While imports declined by 8.5%, exports increased by 1.1%. Sharp decline in imports indicates domestic demand problems and signalled more government stimulus might be needed while increase in exports was suspected to happen due to Chinese exporters rushing deliveries to the US to avoid new tariffs on Chinese goods. Nomura economists said in a note that exports would likely increase in June too but it would fall in the third quarter when they expect new tariffs on Chinese goods worth $300 billion to be imposed.
In the meantime, exports of rare earth materials, which China signaled it would use against the US as trade tensions escalated earlier, declined by 16% in May. Thus, in China, the biggest supplier of rare materials, rare earth materials exports declined by 7.2% in the first five months of the year. As the biggest rare material importer, the US imports 59% of its needs from China.