As trade tensions between the US and China escalated after the US announced that it blacklisted eight Chinese tech company alongside with visa restrictions for some Chinese officials, hopes for a progress in the talks are dashed and gold keeps trading in a tight range on Wednesday. Citigroup analysts said flow into gold would continue and stated yellow metal could rally to $1,700 while holdings in gold backed ETFs continued to increase. Fed Chair Jerome Powell reiterated yesterday that the central bank would act as appropriate to sustain economic growth while he announced that they would soon allow its balance sheet to expand and start buying Treasury bills to provide liquidity to US short term funding markets.
As hopes for a progress in trade talks this week were dashed due to recent escalation in trade tensions, gold prices were holding tight above $1,500 on Wednesday.
As of 14:45 GMT+3, spot gold was trading at $1,501.63 an ounce while dollar index edged down to 99.05. US 10-year Treasury yield inched up to 1.560.
Phillip Futures analyst Benjamin Lu said on Reuters that the markets were waiting to see what would happen in trade talks between the US and China while adding that any deterioration in trade dispute would trigger risk off trade.
As trade tensions escalated ahead of the talks due on Thursday, it is unlikely to see a major progress. The US announced that it blacklisted eight Chinese tech companies as well as 20 other entities and China condemned the move as it signalled retaliation however the US also imposed visa restrictions to some Chinese officials which further escalated tensions between two countries. Moreover, it was claimed that Trump administration was looking for ways to restrict capital flows to Chinese assets. US side stated the recent measures were taken due to Chinese authorities abusing Muslim minorities.
In the meantime, Citigroup analysts said gold prices would continue rising due to higher demand for the precious metal. Analyst expect gold prices to be $1,575 in 3 months and that would later on rise up to $1,700 in 12 months. Alongside with this, holdings in gold-backed exchange traded funds continued to increase due to worries on global economic growth and trade dispute. According to Bloomberg’s data, holdings of gold-backed ETFs increased by 137,439 ounces in the last session.
Federal Reserve Chair Jerome Powell reiterated yesterday that the central bank would act as appropriate to sustain economic growth while signalling for further rate cuts. Powell said there was clearly a slowdown but it was normal in long expansions while stating that the Fed cut the rates to gain steam in similar downturns happened in 90s. Powell also said the central bank would soon allow its balance sheet to expand and start buying Treasury bills to provide liquidity to US short term funding markets but he underlined couple of times that it was a technical move and not the same as quantitative easing the Fed conducted after the financial crisis. According to CME Group FedWatch Tool, there is 84% chance for another rate cut in October after the Fed cut the rates two times this year.