After having weekly loss last week due to reviving optimism regarding US-China trade dispute, gold prices jumped on Monday due to rising geopolitical tensions following the attack on Saudi oil facilities on Saturday and rose above $1,500 an ounce. Following European Central Bank’s decision to ease its monetary policy, focus is now on Fed meeting this week with highly possible rate cut on the horizon. In the meantime, in China where the economy has been slowing due to ongoing trade war and global slowdown, Premier Li Keqiang said it would be very hard for China to grow 6% or more given complicated international situation. On economic data side, data released today showed China’s industrial production grew the least in 17 years in August and growth in retail sales decreased.
Gold prices jumped on Monday by finding support from rising safe haven demand and fading risk sentiment due to escalating geopolitical tensions following the attack on Saudi oil facilities on Saturday.
As of 14:38 GMT+3, spot gold was trading at $1,504.04 an ounce while dollar index was up to 98.37. US 10-year Treasury yield fell to 1.828.
OANDA analyst Jeffrey Halley said on Reuters that the attack on Saudi oil facilities drew attention to safe haven assets from stocks while adding that new target for gold was $1,530 with rising tensions in Middle East alongside with expectation of more monetary stimulus by central banks.
While a Yemeni group backed by Iran claimed responsibility for the attack, US officials claimed Iran was behind it. Moreover, risks for a US military intervention has arisen after US President Donald Trump said they were “locked and loaded” to take measures depending on verification that Iran was actually behind the attack, which lowered risk sentiment and increased appetite for safe haven assets.
Following European Central Bank’s decision to ease its monetary policy further, focus is now on Fed meeting due to start tomorrow. It seems 25 basis point rate cut is in the bag but the Fed may be less dovish than expected in its policy guide and avoid signalling further rate cuts given considerably strong US data last week indicating that consumer spending continued to support moderate economic growth. Alongside with monetary policy decision due on Wednesday, the Fed will also publish its updated forecasts what’s called dot plot.”
In China, where the economy has been hit hard by trade war with the US, Premier Li Keqiang said in an interview that the economy had been facing certain downside risks amid slowing global economy alongside with rising protectionism and unilateralism while underlining that it was very hard for Chinese economy to grow 6% or more considering complicated international situation.
On economic data side, data released today showed industrial production grew at the lowest pace since February 2002 in August. According to the data, as industrial production growth fell to 4.4% from 4.8%, weak demand continued to weigh on Chinese manufacturers. Separate data showed retail sales also declined to 7.5% from 7.6% in August. In an environment where the economic slowdown deepens, more stimulus will likely be needed for recovery as some economists expect Chinese central bank to cut the rates after it cut reserve requirement ratios in early September.