As trade tensions alongside with weakness in global economy support safe haven demand, gold holds firm on Thursday due to increasing rate cut expectations by Federal Reserve following weak consumer inflation data released on Wednesday. Alongside with US President Donald Trump’s criticism of Fed’s policy, US Secretary of Commerce Wilbur Ross also criticized Fed yesterday and said rate hike in December was “at best, premature.” In the meantime, tensions between the US and Germany increased due to President Trump’s statements on Germany Chancellor Angela Merkel supporting pipeline project with Russia as he said Germany could face sanctions. According to data released today, unemployment kept on hold in Australia in May while industrial production continued to decrease in Eurozone in April.
As trade tensions between the US and China persist and support gold prices, yellow metal holds tight above $1,330 on Thursday due to rising expectations that Fed would cut the rates soon following weak consumer inflation data released in the US yesterday. The data proved that weakness in inflation persisted in May since consumer inflation decreased to 1.8% while core inflation was down to 2%.
As of 15:54 GMT+3, spot gold was trading $1,335.24 an ounce while dollar index little changed at 96.96. US 10-year Treasury yield was down to 2.107.
HDFC Securities senior analyst Tapal Patel said on Bloomberg that the US and China did not seem to be coming closer to a trade deal given statements from both sides while Wing Fung Precious Metals head of dealing Peter Fung said gold found strong support at $1.330 and outlook was upside due to rate cut expectations.
After US President Donald Trump criticized Fed for hiking interest rates too much too quickly, US Secretary of Commerce Wilbur Ross said on Bloomberg that Fed should rethink its last rate hike in December which he considered as “premature, at best.” Ross said Fed officials were mistaken by thinking that there would be inflationary risks due to decreasing unemployment and added they hiked the rates aggressively. No rate cut is expected in FOMC’s next meeting on June 18-19 while markets are pricing at least two rate cuts this year, one possible in July.
In the meantime, alongside with criticizing Germany Chancellor Angela Merkel for supporting pipeline project Nord Stream 2 between Germany and Russia, President Trump said Germany could face sanctions. While Trump is worried that Western Europe will be dependent to Russian fuel with this project, he did not give further details which companies would face sanctions. It is stated that the US wants to sell liquefied natural gas to Germany.
According to data released today, unemployment stucked at 5.2% in Australia in May, above expectations of 5.1%. As unemployment did not decrease despite increasing employment, it was stated that Australian economy would need more monetary easing. Reserve Bank of Australia is expected to cut the rates two more times this year after cutting the rates recently to record low level of 1.25% to support slowing economy.
In Europe, Eurozone industrial production decreased in the sixth month consequtively in April and fell by 0.4%. Monthly decrease was as expected at 0.5%, signaling that weakness in Eurozone economy persists in the second quarter.