Gold prices fell sharply on Monday due to less safe haven demand following trade truce between the US and China after Trump-Xi meeting at G20 in Japan. According to the truce, the US suspended planned additional tariffs on Chinese goods and Chinese side promised to buy more US agricultural products while sides also agreed on resuming trade negotiations. Moreover, it was stated that US Commerce Department would study whether Chinese tech company Huawei could be excluded from its blacklist. Despite recent developments in trade relations, economists cautiously say that the trade truce is not different than the previous one in December and potential trade tensions between two countries will persist. In the meantime, global economic slowdown is again revealed as data released today showed weakness in manufacturing activity remained in Japan, China and Eurozone in June.
After hitting the highest in 6 years on last Tuesday, gold prices fell dramatically below $1,400 an ounce on Monday after the US and China agreed on a trade truce at G20 summit and decided to resume negotiations.
As of 15:50 GMT+3, spot gold was trading at $1,394.40 an ounce while dollar index rose to 96.32. US 10-year Treasury yield was also up to 2.027.
CMC Markets chief market strategist Michael McCarthy said on Reuters that investors focused on growth data as trade negotiations would resume between the US and China and thus share markets were supported as safe haven demand decreased. He also said there could be volatility in gold prices and $1,380 support could be tested.
Following the meeting between US President Donald Trump and Chinese leader Xi Jinping at G20 summit in Japan, it was announced that sides agreed on a truce and trade negotiations would resume. With the truce, the US suspended planned additional tariffs on Chinese goods while Chinese side promised to buy more US agricultural products. Trump said the meeting was better than expected and things looked very good while adding he was not in hurry for a trade deal. Trump also said US Commerce Department would study in a few days whether Chinese tech company Huawei could be excluded from its “entity list” that prevented the company from buying American technology without government approval. On the other hand, Xi said China was sincere about continuing in trade talks with the US while underlining importance of equality and mutual respect.
Despite recent developments in trade relations, economists think the trade truce is not any different than the one in December and potential trade tensions between the US and China will persist. Australia & New Zealand Banking Group chief China economist Raymond Yeung underlined on Bloomberg that the US suspended additional tariffs but did not lift current ones while Citigroup economists Cesar Rojas and Catherine Mann stated potential tensions persisted and current tariffs would continue to weigh on the global economy. ING Bank’s Raoul Leering and Iris Pang said it would take much effort to prevent another dispute in trade negotiations and added the situation was not different than G20 summit in December while Allianz chief economic advisor Mohamed El-Erian stated “translating this truce into a durable easing of trade tensions is far from automatic” especially as what had been happening was beyond economic relations and rather about long term national threat issues.
In the meantime, data released today showed that weakness in the global economy persisted in June. Japan’s manufacturing PMI fell to 49.3 from 49.8 in June, showing the worst performance since March and continued to remain in contraction territory. In its export-driven economy, Japanese exporters have been damaged by slowing global trade volume and weakness in foreign demand. On the other hand, Chinese private sector manufacturing PMI contracted unexpectedly to 49.4 from 50.2 in June. Weakness in both domestic and foreign demand contributed to this contraction and Chinese government would need more economic stimulus to reach targeted growth performance. Data released by Chinese official statistics office on Sunday had showed manufacturing PMI was stable at 49.4 while export contracted for 13th. month consecutively.
In Europe, Eurozone’s manufacturing activity fell to 47.6 from 47.7 in June and continued to contract in its fifth month in a row. While weakness in new orders contributed to this performance, it was stated that companies could not increase prices in this economic slowdown not to cause further damage on demand side, putting more pressure on European Central Bank to ease its monetary policy due to persisting low inflation.