Gold prices retreated from 1-month high hit on Monday due to global slowdown concerns as global equities recover from recent fall however gold still holds firm below recent high. Investors are cautious amid increasing concerns about the health of U.S. economy after U.S. short and long term yield curves inverted recently although U.S. 10 year Treasury yield recovered from its 15-month low on Tuesday. Moreover, it is claimed that low yields could force U.S. Federal Reserve to cut rates. In the meantime, while uncertainty around Brexit still yet to be cleared, British parliament took control of the parliamentary timetable and couple of alternatives including second referendum and cancelling Brexit are expected to be voted in the parliament on Wednesday.
While gold prices slipped on Tuesday after hitting one-month high on Monday due to increasing safe haven demand because of global slowdown concerns and U.S. recession worries, prices hold firm despite global equities recover from recent weakness.
As of 15:11 GMT+3, spot gold was trading at $1,314.13 while dollar index was steady on 96.56. U.S. 10-year Treasury yield was higher to 2.448 and global equities in Asia and Europe mostly increased.
While recession worries due to inversion of U.S. short and long term yield curves pushed investors to be cautious, effects of global slowdown on U.S. economy and Fed’s recent more dovish stance with lowering its interest rate hikes to zero for this year in its forecasts deteriorated expectations. So Fed forecasting no rate hikes this year and announcing to end balance sheet reduction in September in its March meeting last week rather increased concerns on U.S. economic outlook instead of improving sentiment.
Citigroup Chief Technical Strategist Tom Fitzpatrick drew attention to inversion of 2-year and 5-year note yields on Reuters and said, Fed always cut rates in the past after the difference between these two yields passed 12 basis points. Only exception to this was in 2006 when the difference was 19 points and Fed waited for 10 months to act, which was followed by the financial crisis in 2008. The difference is currently hovering around 6 basis points. On the other hand, Morgan Stanley’s Strategist Matthew Hornbach pointed out that Fed cut rates after 8 months following the first inversion of 3-month and 10-year yields, which happened on last Friday, and added they still expected 25 basis point rate hike in December but underlined, there would likely be a rate cut if economic outlook got worse.
Australia National Bank economist John Sharma said gold was supported with increasing risks on economic slowdown and interest rates being kept on hold but added, more signals would be needed about economic slowdown to see investors rushing into safe havens like gold.
In the meantime, Brexit uncertainty is still yet to be cleared in the UK as Prime Minister Theresa May said yesterday that there was no support from the MPs to bring twice-rejected Brexit deal to the parliament for a third vote. Following this, House of Commons took control of parliamentary timetable from government and couple of alternatives to current Brexit deal including second referendum and cancelling Brexit will be voted on Wednesday. EU stated that departure date would be postponed to 22nd of May if British parliament approved current Brexit deal or the extension would be until 12nd of April in case of third rejection and underlined that they were prepared for a likely no-deal divorce.