While deepening economic slowdown worries eased due to low unemployment insurance initial claims and edging up producer prices in the US, gold prices sharply declined on Thursday. Yellow metal is steady on Friday while dollar weakens further. In their speeches in different locations, Fed officials stated that interest rates need no changes for a while since US inflation is close to the target level. In the meantime, given that the EU and the US have a brand new trade conflict recently, it was stated that EU ambassadors give initial clearance to trade chief Cecilia Malmström to start official trade talks with the US.
Gold prices steady on Friday after declining sharply to $1,290 on Thursday due to 49-year low unemployment insurance initial claims and increasing producer prices in the US which eased concerns of sharp economic slowdown.
As of 16:01 GMT+3, spot gold was trading $1,292.41 an ounce while dollar index fell to 96.75. US 10-year Treasury yield was at 2.544.
While Fed officials keep their cautious tone about the economy, they are in favor of Fed’s patient stance, given that inflation remains weak. Fed Vice Chair Richard Clarida said yesterday that the US economy was slowing down due to increasing international risks while he added “muted” inflation allowed Fed to keep its patient stance. On the other hand, St. Louis Fed President James Bullard said Fed needed to be careful with its moves to keep the economy on track and expanding, while he underlined the importance of inverted note yields as a sign of a recession. He also added that investors were expecting inflation to stay below Fed’s 2% target in 2019 and in the next five years.
Allianz chief economic adviser Mohamed El-Erian said on CNBC that he thought Fed went too far while stating that Fed was too hawkish in the fourth quarter and then they changed the stance to too dovish in March. El-Erian said that the US economy is still in good place and added he was surprised by the change in Fed’s stance.
In the meantime, there is an escalation in trade relations between the EU and the US recently. It was stated on Thursday that EU ambassadors have given clearance to trade chief Cecilia Malmström to start official trade talks with the US. The US President Donald Trump and the EU Commission President Jean-Claude Juncker agreed on a deal last July and Trump held off imposing punitive tariffs on EU cars, however, it was announced earlier this week that the US was preparing to impose tariffs on $11 billion worth EU goods including Airbus’s aircrafts. EU commission said it would be a negotiation limited to EU cars and insisted there would not be any kind of discussion on agricultural products. However, given $150 billion trade deficit between the EU and the US, US side will likely include agricultural products to the upcoming trade talks.
Moreover, France opposed to the talks saying that there could not be any kind of trade talks with countries outside Paris climate agreement. France underlined that agricultural products could not be part of the trade talks while insisted on climate change provisions to be featured in the talks.