Gold prices recovered slightly on Tuesday due to recession worries following weak manufacturing data from all around the world, after yellow metal sharply fell following trade truce between the US and China. Even though trade tensions between the US and China calmed down at least for a while but this time, trade tensions between the US and EU escalated after US Trade Representative’s office stated yesterday that the US would impose tariffs on additional EU goods worth $4 billion, boosting safe haven demand. In the meantime, Reserve Bank of Australia lowered interest rates today to support the economy after its recent rate cut in June.
After falling below $1,400 an ounce due to increasing risk sentiment after the trade truce between the US and China following Trump-Xi meeting at G20, gold prices increased on Tuesday due to recession worries following weak June manufacturing data released yesterday all around the world.
As of 15:27 GMT+3, spot gold was trading at $1,391.65 an ounce while dollar index was at 96.71. US 10-year Treasury yield was down to 2.024.
CMC Markets market analyst Margaret Yang Yan said on Reuters that weak data reminded of recession risk which was a part of the driver for safe haven while adding trade tensions took the stage again as focus had shifted from US-China tensions to US-EU tensions.
Trade tensions between the US and China calmed down at least for a while but this time, tensions between the US and EU regarding aviation competition escalated again. US Trade Representative’s office stated yesterday that the US would impose additional tariffs on EU goods worth $4 billion and trade tensions escalated between two sides which have been an issue for around 15 years as USTR also stated this new list of EU goods would be added to previous list of goods released in April, worth $21 billion. Sides had threatened to impose mutual tariffs on each other due to disagreement regarding government subsidies to Boeing and Airbus which they claimed to cause trade advantages and took the issue to World Trade Organization (WTO). WTO stated earlier that it found billions of dollar subsidies received by these planemakers however the decision has yet to be made. US side said tariffs could take place from August while stating the date could be earlier depending on WTO’s decision.
Focus is now back on recession risk that the world economy will likely face in the close future as data released yesterday showed manufacturing in Japan, China, UK and Eurozone contracted in June and manufacturing PMI showed the weakest performance since October 2016 in the US. Roubini Macro Associates’ CEO Nouriel Roubini said on Bloomberg that following trade truce between the US and China, markets had confidence that central banks would support the economy while adding already low or negative rates were making central banks vulnerable against a possible recession shock. He also said he expected a recessionary shock to materialize next year.
In the meantime, Reserve Bank of Australia (RBA) announced today that it cut the rates by 25 basis point to 1% after it cut the rates to record low level of 1.25% in early June. RBA Governor Philip Lowe said monetary easing would support employment growth and increase the confidence that inflation would be consistent to medium-term target while adding they would closely watch labor market and go for further monetary stimulus if necessary. Data released last month had showed that Australian economy’s growth performance was the weakest since 2009.