Gold holds firm on Friday after finding support from weakening dollar amid weak US data released yesterday showing economic activity in manufacturing and services sectors decreased alongside falling new home sales. The weak reading also caused rising expectations of a rate cut in the US however Fed officials kept their patient stance and stated there was no need for a change in interest rates. European Central Bank policy maker Bostjan Vasle said Eurozone economy was on the right track to central bank’s projections that expected a recovery in the second half of the year. In the meantime, while trade tension is still high between the US and China, US President Donald Trump said Chinese tech company Huawei could be included in a possible trade deal with China.
Gold prices hold firm above $1,280 on Friday after finding support from decreasing dollar due to weak economic data released in the US yesterday.
As of 15:56 GMT+3, spot gold was trading at $1,284.29 while dollar index was down to 97.76. US 10-year Treasury yield was at 2.331.
Angel Commodities Broking analysts Prathames Mallya and Yash Sawant said in a report that gold would likely find support from increasing safe haven demand as trade tensions would harm risk sentiment and weak US data would weigh on dollar.
While US flash data released yesterday showed that manufacturing PMI decreased to 50.6 from 52.2 in May alongside with services PMI falling to 50.9 from 53, expectations that Fed would cut the rates increased considering the risk of trade dispute lasting longer between the US and China. However Fed officials stated yesterday that there was no reason to change interest rates in either way. Cleveland Fed President Loretta Mester said on Bloomberg she didn’t agree with the approach saying that cutting rates would increase inflation and instead, Fed needed to be careful not to react quickly to inflation rising above target. Dallas Fed President Robert Kaplan said interest rates were at the correct settings for the economy while adding it was hard to say whether Fed’s next move would be a rate cut or a rate hike due to rising trade tensions and inflationary pressures.
European Central Bank’s (ECB) one of the new governors and head of Slovenia central bank Bostjan Vasle said Eurozone economy was on the right track of ECB’s projections that expected a recovery in the second half of the year. Vasle said if things were to deteriorate, ECB would use appropriate monetary policy tools to support economy but added economy was strong enough at the stage. Vasle also said Eurozone had been facing outside risks instead of domestic ones while underlining current global trade practices and planned trade restrictions were putting at risk the global economy and parts of the world where economies had been more open to trade like Eurozone.
In the meantime, while trade tensions between the US and China persist, US President Donald Trump said yesterday that Chinese tech company Huawei could be included in a possible trade deal with China. In addition, US Secretary of State Mike Pompeo said Huawei had ties with Chinese government which put US national security at risk. Besides, some companies all around the world were on Google’s trail in suspending business with Huawei. Japanese Panasonic and British chip designer ARM announced that they would suspend some component sales to Huawei. This is expected to cripple Huawei’s chip production for its new smartphones.