Gold eases on Thursday but keeps its upside momentum after it hit the highest since April 2013 at $1,510 on Wednesday by finding support from global growth worries due to recent escalation in trade tensions. Goldman Sachs said in a report that upside movement in gold prices would continue as investors looked for safe havens due to trade dispute and added gold could hit $1,600. While expectations increased that Fed would continue cutting rates due to global growth worries, Chicago Fed President Charles Evans said further rate cut could be needed in light of weak inflation and worries on trade outlook. In the meantime, Chinese central bank signalled it would keep its currency stable by setting its reference rate for yuan above 7 but below expectations against US dollar for the first time since the global crisis. Besides, data released today in China showed exports increased in July while imports contracted less than expected.
As trade dispute between the US and China spreads concerns on global economic outlook and lead investors to flee risky assets for safe havens, gold prices keep tight around $1,500 an ounce after it hit above this level yesterday.
As of 15:18 GMT+3, spot gold was trading at $1,499.27 an ounce while dollar index was slightly up to 97.65. US 10-year Treasury yield slightly recovered at 1.719.
CMC Markets chief market strategist Michael McCarthy said on Reuters that central banks’ moves all around the world were so important and potential depreciation in currencies was supporting gold prices while adding gold might consolidate for a while considering its quick rise recently.
Goldman Sachs said in a report that investors were rushing into safe havens due to deteriorating global economic outlook and escalation in US-China trade dispute while adding gold could hit $1,600 an ounce in 6 months. Goldman Sachs analysts also said holdings in gold-backed ETFs quickly increased recently like in 2016 and this was expected to continue in the short term.
As expectations increased Fed would continue cutting rates to prevent further deterioration in global economic outlook, Chicago Fed President Charles Evans said yesterday that the central bank eased its monetary policy since last year however further rate cut could be needed due to weak inflation and worries on trade outlook. Evans said risks US economy faced was not only weak inflation but also that trade dispute was causing volatility and uncertainty despite strong fundamental indicators while he added, if labour market was to show weakness, this would pose risk to the economy since consumers had been “the lynchpin of growth.”
In the meantime, Chinese central bank set its yuan reference rate at 7.0039 against US dollar today, above 7 for the first time in 11 years but below expectations, which led to yuan appreciation and easing concerns that trade war would turn into a currency war. China is expected to continue sending strong signals and keep yuan stable from further devaluation.
Data released today in China showed exports, which was expected to decline, increased in July while imports declined less than expected. Dollar denominated exports increased 3.3%, expectations was 2% decline, while imports declined 5.6%, below expected 8.3%. As weakening yuan compensated some of US tariffs and helped Chinese exporters, increase in exports is expected to continue ahead of additional US tariffs due on September 1. However, it will unlikely to continue after additional tariff takes place as it would shadow the effects of weaker yuan and weigh on Chinese exporters.