Gold prices increased on Wednesday amid global growth worries as well as ongoing geopolitical uncertainties and managed to hold above $1,500 an ounce after falling sharply following postponing of additional US tariffs until December. The decision announced by the Office of Trade Representative yesterday supported dollar and led to an increase in global markets as sides would continue trade negotiations in the upcoming weeks. However, ongoing trade dispute despite cooling trade tensions continued to threaten global economic outlook. According to data released today, industrial production in China fell to its lowest level in 17 years while retail sales were well below expectations. In Europe, data showed German economy contracted in the Q2 and in the UK, consumer inflation unexpectedly increased in July. Data also showed Eurozone economy slowed down in the Q2 while industrial production contracted more than expected.
Gold prices declined sharply to as low as $1,483 an ounce on Tuesday with increasing risk sentiment due to cooling trade tensions as the US postponed additional tariffs however yellow metal increased above $1,500 an ounce on Wednesday by finding support from ongoing global growth concerns and geopolitical tensions in Hong Kong alongside with Brexit uncertainty.
As of 15:37 GMT+3, spot gold was trading at $1,512.83 an ounce while dollar index fell to 97.69. US 10-years Treasury yield was down to 1.608.
VM Markets managing partner Stephen Innes said on Reuters that financial markets were hungry for good news as China announced further phone talks with the US and the US postponed additional tariffs which caused profit selling in safe haven assets.
Although trade tensions cooled following recent developments on trade front, ongoing trade war continued to weigh on the global economy. According to data released today in China, industrial production fell to 4.8% from 6.3% and showed the worst performance since February 2002. Falling infrastructure and property investment alongside with worse-than-expected fixed-assets investment showed weakness in the economy persisted in the early Q3 while another data showed retail sales declined to 7.6% from 9.8%. Due to continuously weakening economy, growth is expected to fall to and below 6% while it is highly likely that further fiscal and monetary stimulus will be on the way.
In Europe, data released today showed German economy, which has been hit by trade war and global economic slowdown, contracted by 0.1% as expected in the Q2 with weakening exports. Facing a risk of recession, German economy is expected to be under further pressure in case of no-deal Brexit. Moreover, German economy will likely continue to weaken and face a possible contraction in the Q3 due to global economic growth dashed by ongoing US-China trade tensions and possible US tariffs on European carmakers.
In the UK, consumer inflation unexpectedly increased to 2.1% from 2% and exceeded Bank of England’s target. While there was no change in consumer prices on monthly basis, core inflation also rose to 1.9% from 1.8%. Consumer inflation mostly affected by increasing raw materials prices in manufacturing sector. Even though the impact is thought to be small, weakening pound might lead inflation to rise even further which would make the case for BOE to continue its interest rate hiking cycle.
In Eurozone, growth declined to 0.2% from 0.4% in the Q2 while annual growth was in line with expectations at 1.1%. Data also showed industrial production fell 1.6% monthly in June while annual contraction was 2.6%. In Eurozone where the economic weakness persists, European Central Bank is highly expected to cut the rates and go for expansionary monetary policy in September.