Gold rises on Wednesday following US President Donald Trump’s statements regarding US-China trade relations, after falling to $1,320 an ounce earlier due to trade deal between the US and Mexico. Trump said on Tuesday that trade talks with China would not continue unless Beijing went back to terms agreed on before while adding there would be either a good deal or no deal at all. As expectations of a rate cut by Federal Reserve increased due to slowing US economy and recent weak data, how consumer inflation data due to be released today will affect these expectations will be under spotlight but some economists are cautious to be sure of a rate cut even though markets are pricing at least two rate cut this year. According to data released today in China, producer prices declined while consumer prices edged up in May.
As trade tensions between the US and China escalated due to US President Donald Trump’s statements yesterday, gold prices increased on Wednesday after falling sharply to $1,320 an ounce following trade deal between the US and Mexico.
As of 13:26 GMT+3, spot gold was trading at $1,335.74 an ounce while dollar index was steady at 96.69. US 10-year Treasury yield decreased to 2.126.
OANDA senior market analyst Alfonso Esparza said on Reuters that gold held firm given unresolved trade dispute between the US and China while adding gold prices would increase due to rising safe haven demand if there was no meeting between Donald Trump and Chinese leader Xi Jinping at G20 summit at the end of June.
Trade tensions between the US and China escalated following President Trump’s statements yesterday. Trump said trade talks between the US and China would not continue unless Beijing went back to deal terms agreed on before while adding he was the one holding up the deal and stating there would be either a great deal or no deal at all. Trump reiterated that there was a deal but China stepped back from its commitments. He said earlier that he would increase tariffs on Chinese goods worth $300 billion to 25% or even more if Chinese leader Xi Jinping did not meet him at G20 summit at the end of June in Japan.
In the meantime, while markets expect that Fed would cut the rates at least two times this year following weak employment and wage growth data in May as well as slowing US economy, how consumer inflation data due to be released today will affect these expectations will be under spotlight. While inflation is expected to edge down, core inflation is forecasted to be steady at 2.1%
However, some economists warn that markets should not be so sure of a rate cut by Federal Reserve. Goldman Sachs chief economist Jan Hatzius said in a note that despite disappointing employment data in May and slowing economy, long term employment trend was strong and unemployment was record low at 3.6% while underlining business and consumer sentiment was still positive and Fed would think twice before deciding to a rate cut.
While worries increased that escalating trade tensions would lead the world economy into a recession, producer prices decreased to 0.6% from 0.9% in May in China while core consumer inflation was also down to 1.6% from 1.7%, according to data released today. Consumer inflation increased to 2.7% from 2.5% however this was stated to happen due to increasing food prices since bad weather hit fruit/vegetable production and pork supply was wiped out by African swine fever. Capital Economics said in a note on Wednesday that as strong recovery was not expected in the economy and industrial commodity prices would likely be subdued, there would be not much upside movement in either producer or consumer prices. In trade data released earlier, China’s imports declined beyond expectations in May, indicating deepening weakness in domestic demand.