Gold kept its upside movement which started following Fed’s decision to keep interest rates on hold and signal expansionary monetary policy last week and yellow metal hit 6-year high on Tuesday as geopolitical tensions escalated following US sanctions on Iran. US President Donald Trump signed an executive order that imposed sanctions on Iran as of yesterday while Iranian officials said this move closed all paths to diplomacy. In the meantime, Evercore ISI strategist Donald Straszheim said Trump-Xi meeting at G20 summit this week would be subject to three possible outcome including the US postponing new tariffs indefinitely and start negotiations. Regarding Fed’s policy, Dallas Fed President Robert Kaplan warned a rate cut would contribute to imbalances in the economy and said it would be wise to wait before any changes to rates.
By finding support from central banks including Fed and ECB turning dovish, gold prices kept upside momentum and hit 6-year high on Tuesday as geopolitical tensions escalated after the US imposed sanctions on Iran as of Monday.
As of 15:55 GMT+3, spot gold was trading at $1,426.38 an ounce while dollar index was at 96.01. US 10-year Treasury yield was down to 2.007.
GoldCore research director Mark O’Byrne said on Reuters that outlook for gold was very positive in the incoming months however warned that recent gold rally might have over extended itself and there might be a correction especially in the next couple of days.
As tensions between the US and Iran escalated after Iran shot down US drone last week, US sanctions on Iran took place as of Monday following US President Donald Trump’s executive order. Sanctions aim to force Iran to agree on a meeting to negotiate by blocking Iran’s leader Ali Khamenei and some other state officials from accessing to US financial system and Iranian assets in the US while it was stated that the US had never imposed sanctions on any Iranian leader before. On the other hand, Iran side stated that the move to impose sanctions on top officials closed all paths to diplomacy.
Regarding Trump-Xi meeting at G20 summit this week in Japan, Evercore ISI strategist Donald Straszheim said there would be three possible outcome from the meeting. Straszheim said the most possible outcome would be that US would agree to suspend additional tariff increase on Chinese goods and sides agree to start negotiations again while adding this outcome had a probability of 45%. According to his second scenario, US would suspend additional tariffs for a limited time and start negotiations again which he said this outcome had 35% probability and in the last scenario which is the worst case, neither side would mention about tariffs in their statements and this would suggest US would implement additional tariffs soon.
In the meantime, Dallas Fed President Robert Kaplan was cautious on a possible rate cut in his statement yesterday and warned that monetary easing would contribute to “a build-up excesses and imbalances in the economy” which would be hard to manage. Kaplan also said it would be wise to wait to see whether trade dispute and other uncertainties would hurt US economy before making any change to rates.