After finding support from expectations that Fed will likely cut the rates after two-day meeting which starts today and reaching $1,428 an ounce on Monday, gold prices declined slightly on Tuesday, pressured by stronger dollar as Fed will likely not go for an aggressive rate cut on Wednesday, however yellow metal seems to recover and holds tight ahead of rate cut decision. As major central banks go for looser monetary policy one by one due to slowing global economy, Bank of Japan announced today that it kept interest rates on hold while adding there would be no hesitation to ease monetary policy if economic outlook deteriorated further. In the meantime, following ECB President Mario Draghi’s statement last week saying economic outlook continued to weaken further, data released today showed France’s economic growth slowed down in the Q2.
As dollar index hovers around 2-month high, gold prices slightly declined on Tuesday after hitting $1,428 an ounce on Monday and then recovered as outlook for gold is positive since rate cut expectations dominate the markets.
As of 15:37 GMT+3, spot gold was trading at $1,427.64 an ounce while dollar index was at 98.05. US 10-year Treasury yield was down to 2.049.
Phillip Futures analyst Benjamin Lu said on Reuters that liquidity was still thin since traders were holding back ahead of Fed’s decision while adding tone in Fed’s statement and how many more rate cuts were expected in the future would also be under spotlight.
As major central banks turn to looser monetary policy one by one due to global economic slowdown, Bank of Japan announced today that it kept interest rates on hold at -0,1% while adding there would be no hesitation to ease monetary policy if economic outlook deteriorated. BoJ Governor Haruhiko Kuroda stated that he earlier had said easing monetary policy would have been considered if economic outlook had deteriorated but now they would not consider but immediately act to ease monetary policy if economic momentum faltered to reach 2% inflation target. In addition, BoJ lowered its inflation forecasts for 2019 to 1% from 1.1%, inflation in Japan was 2-year low at 0.6% in June, and economic growth for this year to 0.7% from 0.8%. By signalling looser monetary policy as ECB did last week, BoJ tries to prevent Japanese yen to aggressively appreciate and hurt Japanese exporters in an environment where major central banks turn to expansionary monetary policy all around the world.
Following ECB President Mario Draghi’s statement last week saying that economic outlook continued to get worse, data released today showed that bloc’s second largest economy France’s economic growth slowed in the Q2. France’s economy slowed to 0.2% in the Q2 from 0.3% in the Q1 due to weak consumer spending despite fiscal stimulus as well as decreasing company inventories. However, as French economy is much more resilient to outer economic impacts comparing to Germany, business investments increased in the Q2 while consumer spending is expected to recover in the coming months due to planned tax cuts in the future.