Gold prices increased above $1,400 an ounce and hit 6-year high on Friday, keeping its upside momentum after Fed kept interest rates on hold and signalled a rate cut. Even though gold prices declined below this level after profit taking, yellow metal is expected to keep its upside momentum as central banks in the world including Fed, European Central Bank, Bank of England, Bank of Japan and Reserve Bank of Australia underlined deteriorating conditions in the world economy and turned dovish. Geopolitical tensions between the US and Iran escalated as Iran shot down a US drone and it was claimed that Donald Trump stepped back from a planned attack on Iranian targets after approving it. According to data released today, Japan’s consumer inflation was down in May and manufacturing contracted in June. On the other hand, Eurozone manufacturing continued to contract in June while there was recovery in German and French manufacturing.
Gold prices continued to rise and hit 6-month high at $1,411 an ounce on Friday by finding support from weakening dollar and yields following Fed’s decision of keeping interest rates on hold and signaling a rate cut. Even though yellow metal decreased below $1,400 after profit taking, it is expected to keep its upside momentum.
As of 15:55 GMT+3, spot gold was trading at $1,396.70 an ounce while dollar index was at 96.57. US 10-year Treasury yield recovered slightly and increased up to 2.35.
Anand Rathi Shares & Stock Brokers commodity analyst Jigar Trivedi said on Reuters that gold was supported by dovish ECB and Fed, geopolitical tensions in the Middle East and breaking above $1,350 psychological level while adding this upside momentum is expected to persist in the second half of the year.
Major central banks all around the world are turning dovish and signalling expansionary monetary policy as trade tensions are on the rise and global economic outlook continues to deteriorate. Fed kept interest rates on hold on Wednesday and signalled a rate cut possibly in July by stating it would act as appropriate to sustain economic growth. Bank of England, which is planning to hike the rates, kept interest on hold and underlined deteriorating global trade relations as well as increasing risks of no-deal Brexit. Since no-deal Brexit would hit British economy hard, BoE is expected to put aside its rate hike plans and ease its monetary policy to support the economy. European Central Bank also signalled that more stimulus would be required if weak inflation was to persist. Bank of Japan did not change the rates yesterday while stating downside risks regarding overseas economies were big and it would closely watch how this would affect corporate and household sentiment in Japan. Moreover, it is stated that it would not be a surprise if Reserve Bank of Australia went for more monetary stimulus, given that the bank already cut the rates down to record low earlier this month.
In the meantime, geopolitical tensions between the US and Iran escalated after Iran shot down a US drone while The New York Times claimed that US President Donald Trump approved a planned attack to Iranian targets but later on stepped back from his decision. Trump said yesterday that the drone was in international air space and Iran made a big mistake shooting it down.
According to data released today, Japan’s consumer inflation was down in May while manufacturing contracted in June. Consumer inflation was down to 0.7% from 0.9% while core inflation was down to 0.8% from 0.9%. Manufacturing PMI decreased to 49.5 from 49.5 in June. Falling new orders played a big role in this contraction as it was hit by trade tensions between the US and China.
While business sentiment decreased to the lowest level in five years in Europe due to trade tensions and global economic slowdown, manufacturing continued to contract for the fifth month in June despite increasing slightly to 47.8 from 47.7. Alongside with services PMI which increased to 53.4 from 52.9, IHS Markit composite index was up to 52.1 from 51.8 showing that contraction in manufacturing was made up by expanding services while it also indicated that Eurozone economy was reliant on the services sector. In addition to this, German manufacturing continued to contract even though it increased slightly to 45.4 from 44.3 while French manufacturing kept its upside momentum by increasing to 52 from 50.6.