Supported by tensions between the US and China alongside with weak economic data in the US, gold prices declined as an initial reaction to the announcement that EU and the UK reached a Brexit deal however yellow metal recovered due to weak data increasing worries over the health of the global economy. British Prime Minister Boris Johnson announced today that the EU and the UK reached a new Brexit deal and stated British parliament should approve the deal on Saturday while Head of EU Commission Jean Claude Juncker called for support from EU countries. In the meantime, Fed’s Beige Book stated that the US economy expanded at a slight to modest pace in September and early October but firms’ outlook for coming months was cloudy. Moreover, as rate cut expectations increased due to weak retail sales data in the US, Chicago Fed President Charles Evans said yesterday that there was an argument for more accommodative monetary policy against potential risks. On economic data side, data released today showed that retail sales in the UK increased annually in September while separate data showed applications for unemployment benefits increased in the US last week and housing starts fell from 12-year high in September.
Gold prices declined as an initial reaction to EU-UK new Brexit deal however growing concerns regarding global economy continued to support gold and yellow metal recovered from that fall. Weaker dollar also supported the precious metal.
As of 16:22 GMT+3, spot gold was trading at $1,491.70 an ounce while dollar index was down to 97.76. US 10-year Treasury yield was up to 1.757.
Ahead of EU leaders’ summit today, it was announced that EU and the UK reached a new Brexit deal. Head of EU Commission Jean Claude Juncker said sides agreed on a deal and this should be backed by EU countries while UK Prime Minister Boris Johnson stated British parliament should approve the deal on Saturday. Johnson needs to get support from Northern Irish Democratic Union Party (DUP) to get the deal passed through the parliament but DUP is known for its objection to the proposed deal in the negotiations early this week.
Fed released its Beige Book yesterday and stated the economy expanded at a slight to moderate pace in September and early October however firms’ outlook for coming months deteriorated. In the report that evaluates general sentiment of the firms all around the country, it was stated businesses lowered their outlooks for growth for the next 6-12 months while saying that trade dispute alongside with global economic slowdown weighed on economic activity. The report underlined increasing input costs in manufacturing sector due to new tariffs and production declined due to weaker orders.
In the meantime, as rate cut expectations increased due to recent data showing that manufacturing sector contracted the worst in 10 years and retail sales declined for the first time in seven months in September, Chicago Fed President Charles Evans said there was an argument for more accommodative monetary policy against potential risks. Evans also said the economic outlook was in good shape and monetary policy was in good place while adding that recent two rate cuts were appropriate but there was no need for another rate cut until the end of 2020. According to CME Group FedWatch Tool, there is 88% chance for another rate cut in October.
On economic data side, data released today showed retail sales in the UK did not change on monthly basis but increase in annual retail sales rose to 3.1% from 2.6%. Weak data caused concerns over resilience of consumer spending which is vital for British economy while there is a risk of weakness in business sentiment due to Brexit uncertainty spilling over households’ sentiment.
In the US, applications for unemployment benefits increased to 214,000 last week from 210,000 and four-week average, accepted as a better indicator, increased 1,000 to 214,750. Separate data showed housing starts declined by 9.4% in September and fell from its 12-year high. However, lower borrowing costs are expected to continue supporting housing market.