As gold prices hold firm on Friday after its increase from four-month low due to weak economic data from Germany and Asia, dollar index is hovering around recent highs at 98. After South Korea contracted unexpectedly in the first quarter, Asia keeps sending weak signals as Japan’s industrial production falls in March. On the other hand, according to long-waited US data, the economy grows above expectations in the first quarter on annual basis but quarterly growth is weak. In the meantime, White House economic advisor Larry Kudlow says Fed might be moving to rate cuts while economists polled by Reuters think that major central banks are done with tightening cycle.
As growth concerns increases due to weak economic sentiment in Germany and contracting economy in South Korea, gold holds firm, finding support from mixed equities and weak long term note yields.
As of 17:00 GMT+3, spot gold was trading at $1,285.04 while dollar index was down to 97.99. US 10-year yield weakened further to 2.500.
Quantitative Commodity Research analyst Peter Fertig said on Reuters that euro’s increase against dollar and weakening dollar index were positive for gold while he added yellow metal was supported by lower long term note yields in the Eurozone and the US as well.
Asian economy kept showing further weakness as the data released today showed Japan’s industrial output decreased by 0.9% in March. As export-driven Japanese economy has been hurt by the trade dispute between the US and China as well as slowing global economy, Norinchukin Research Institute chief economist said on Asian Review that exports and output, main drivers of Japanese economy, have been decreasing since last year and there was no sign of recovery anytime soon.
According to data released in the US on Friday, American economy grew above expectations at 3.2%, however core personal consumption expenditure moderated. In this case, Fed is expected to keep its patient approach and wait to see how the US economy will develop in the second quarter before making a move.
While White House economic advisor Larry Kudlow said yesterday that Fed was on the way to rate cuts, economists polled by Reuters thinks tightening cycle has come to an end and major central banks are done with their tightening policy due to slowing global economy. Capital Economics head of global economy Jennifer McKeown said on Reuters that, recent weakness in global economy would last longer than expected while she added dovish central banks and Chinese economic stimulus would not be enough to boost already slow-paced global economic growth.
Rabobank’s Elwin de Groot said European Central Bank (ECB) blamed trade war and China for economic weakness in the Eurozone while Fed pointed out Eurozone and China for slowing US economy as he added one could think central banks have low confidence over the effect of their policies. Fed has already decided to stop its tightening cycle soon while ECB is not expected to increase interest rates anytime soon, at least through next year. Japan’s central bank keeps its loose monetary policy as Chinese central bank will wait to see economic developments before making any further stimulus move.