Gold prices hold firm around 3-month high due to increasing global growth worries while uncertainty rises with US trade war against China and Mexico. American side responded to China’s recent statements that trade talks were broken because of the US and said China misrepresented the nature and history of trade negotiations while adding talks ended without a deal since China stepped back from its commitments. Weak manufacturing data released this week justified global growth concerns while St. Louis Fed President James Bullard said on Monday that Fed might need a rate cut. In the meantime, Australian central bank cut the rates for the first time in three years, pointing out weak labor market and inflation. Some economists think this move could lead other major central banks to ease their monetary policies as well.
As risk sentiment deteriorates due to increasing trade tensions and worries that global economic slowdown may deepen further, gold is holding firm around 3-month high.
As of 15:31 GMT+3, spot gold was trading at $1,321.94 an ounce while dollar was up to 97.29. US 10-year Treasury yield was at 2.12.
INTL FCStone analyst Edward Meir said on Reuters that they expect turbulence in US equity markets and decreasing yields to continue weakening further while adding gold was expected to range higher in June. Meir also said this upside momentum could gain more traction if Federal Reserve was to signal a rate cut.
Trump administration responded to China’s recent statements blaming US for broken trade talks and said China misrepresented why trade talks between two countries reached an impasse. In the statement, it said Washington’s negotiation positions had always been consistent throughout trade talks and China back-pedalled from its important commitments which were agreed on by two sides.
As worries increase due to signs that trade war is taking a toll on the world economy, St. Louis Fed President James Bullard saying on Monday that Federal Reserve might need a rate cut soon was seen as a sign of central bank’s changing stance. Bullard said a rate cut could help re-centering inflation and increasing it to 2% target while adding it would also provide insurance against a sharper-than-expected slowdown in the economy. According to data released earlier this week, it was seen that manufacturing activity in Asia, Europe and the US slowed down in May.
In the meantime, Reserve Bank of Australia (RBA) announced that it cut the rates to 1.25 for the first time in three years. RBA Governor Philip Lowe said The Board took this decision to support employment growth and increase the confidence that inflation would rise up to mid-term target. Lowe also said that developments in labor market would be watched closely and central bank could adjust its monetary policy to support sustainable economic growth and achieve inflation target over time, signalling further rate cut decision could be taken.
However JP Morgan Asset Management global market strategist Kerry Craig said on Reuters that RBA would not cut the rates quickly and was aware of that cutting rates in a situation where the rates are already low would likely have limited effect on the economy while adding RBA would prefer government to increase spending to stimulate the economy. Some economists also think that RBA’s rate cut could lead other major central banks to go for an easier monetary policy as well.