Gold rises back above $1,400 on Monday after falling sharply and having weekly loss due to stronger dollar and dashed hopes that Fed would go for an aggressive rate cut following better than expected US jobs data released last Friday. Now, there is no expectation for a 50 basis point rate cut by Fed, however, Fed will still likely go for a 25 basis point cut since little has changed in global conjuncture considering slowing economy, trade war and ongoing geopolitical tensions. Moreover, Chinese central bank is expected to cut the rates as well if Fed decides to ease its policy in July. In the meantime, data showed today that Germany’s industrial production and exports slightly increased in May but they were not successful to make up for previous month’s weak performance.
After falling sharply due to better than expected US jobs report with 224,000 new jobs created in June showing that the US economy was not in quick slowdown and Fed would not cut the rates aggressively, gold prices recovered slightly and held above $1,400 an ounce on Monday.
As of 15:26 GMT+3, spot gold was trading at $1,405,62 an ounce while dollar index little changed at 97.31. US 10-year Treasury yield also edged down to 2.032.
OCBC Bank economist Howie Lee said on Reuters that despite strong US jobs data, the markets were still expecting a rate cut in July while adding the global outlook was positive for gold considering global economic weakness and ongoing geopolitical tensions.
Expectations for a 50 basis point rate cut was already lowered by Fed officials’ statements earlier however hopes for an aggressive rate cut was completely dashed this time after strong US jobs data, yet it was stated that 25 basis point rate cut would be still on the table at FOMC meeting at the end of July. Moreover, Chinese central bank (PBoC) is also expected to cut the rates if Fed decides to ease its policy this month. PBoC has taken number of different measures from cutting reserve requirements to injecting money into the financial system to support slowing Chinese economy however these measures had limited impacts on the economy given trade dispute between the US and China and global economic slowdown as well as weak domestic demand. Analysts think PBoC would go for a 10 basis point rate cut in its policy rates for the first time since October 2015 while it is expected to have limited impact on the economy but it may help restoring market confidence.
In the meantime, data released today showed German exports increased by 1.1% in May, showing signs of recovery but it failed to make up for its 3.4% fall in April while exports also declined by 0.5% in May. Another data showed industrial production increased by 0.3% in May after falling 2% in April. Capital Economics economist Andrew Kenningham said on Reuters that it did not mean the end of problems for German manufacturers, on the contrary, it signalled contraction in industrial production in the second quarter. Given last Friday’s data showing that factory orders continued to decline in May, weakness persists in export-driven German economy which has been hit by slowing global economy as well as Brexit uncertainty.