As uncertainty around trade talks increased due to recent contradictory news, gold prices hit one week high with higher safe haven demand by investors. According to The South China Morning Post, there was no progress in deputy-level talks earlier this week since Chinese side did not want forced technology transfer to be a part of negotiations and that Chinese trade team would leave Washington earlier than planned. According to Bloomberg, US side wants to reach a partial deal that includes currency pact agreed on before and this will also suspend planned tariff increase on Chinese goods. Moreover, it was claimed that US President Donald Trump was planning to allow American companies to supply nonsensitive goods to Huawei. On the other hand, In Fed’s minutes released yesterday, it was seen that most policymakers favored the rate cut in September and stated that they would soon need to discuss balance sheet expansion.
Uncertainty increased due to contradictory news ahead of trade talks starting today and gold prices increased to one week high on Thursday.
As of 15:30 GMT+3, spot gold was trading at $1,510.45 an ounce while dollar index was down to 98.74. US 10-year Treasury was at 1.579.
Anand Rathi Shares & Stock Brokers commodity analyst Jigar Trivedi said on Reuters that gold kept strong above $1,500 due to healthy inflow to gold-backed ETFs while adding that gold prices would rally if trade talks were to fail again.
According to The South China Morning Post, there was no progress in deputy-level trade talks early this week since Chinese side did not want to negotiate forced technology transfer which is one of the main demands by US side and that Chinese trade team would leave Washington earlier than planned. Chinese side only focused on agricultural product imports and intellectual property rights and there was no progress in suspending planned tariff increase next week while Vice Premier Liu He was claimed to leave Washington on Friday instead of Saturday. White House spokesman said “we are not aware of a change in the Vice Premier’s travel plans at this time.”
Bloomberg’s sources said US side was looking for a partial deal that included currency pact agreed on before talks collapsed and this would also lead to suspension of planned tariff increase next week. Currency pact would be a part of first-phase agreement and important issues like intellectual property rights and technology transfer would be included later however there is still uncertainty regarding this since President Trump already reiterated that he did not want a partial deal.
In addition to this, it was claimed that President Trump was planning to allow US companies to sell nonsensitive goods to Chinese tech giant Huawei. Earlier, the US blacklisted many Chinese entities and companies including Huawei and they were banned from buying American technology without government approval however this ban technically has never taken effect due to temporary reprieve. Nevertheless, this move could still ease tensions between two countries.
In the meantime in Fed minutes released yesterday, it was seen that most policymakers favored the rate cut in September however there was dissidence among officials regarding monetary policy path. Some favored further rate cuts due to economic slowdown while others favored current monetary position since uncertainties would not derail economic growth. Policymakers also mentioned liquidity problems in US short term funding markets and stated the importance of opening discussion for balance sheet expansion while underlining that it should be clearly distinguished from past large-scaled asset purchasing programs.