As worries on global economic outlook increased due to new tariffs by the US and China taking effect on Sunday, gold prices increased on Monday and kept its strong position despite pulling back due to profit taking later on. First batch of tariffs is expected to affect consumers directly this time as second batch of tit-for-tat tariffs is expected to take effect in Mid-December. On economic data side, data released today showed manufacturing sector contracted for the fourth month in August while Chinese manufacturing unexpectedly expanded. In Eurozone, as manufacturing in France, Italy and Spain recovered slightly in August, Germany’s manufacturing continued to contract, thus bloc’s manufacturing recovered slightly as well. In the UK, manufacturing has seen the sharpest contraction in seven years.
Gold prices hit $1,533 an ounce on Monday due to tit-for-tat tariffs by the US and China taking effect on Sunday but later on, gold’s upside movement was limited by profit taking as well as stronger dollar.
As of 13:08 GMT+3, spot gold was trading at $1,525.72 an ounce while dollar index increased to 99.07.
ANZ analyst Daniel Hynes said on Reuters that new tariffs caused risk-off sentiment in the markets to remain while adding traders wanted to see a restart to trade negotiations with some possible positive outcome before any optimism related to trade war.
Additional tariffs imposed by the US and China took effect on Sunday and further increased worries on global economic outlook. According to Bloomberg, new 15% US tariffs will affect Chinese goods worth $110 billion and this is expected to impact consumers directly this time. As a retaliation, China also imposed new tariffs ranging from 5% to 10% and first batch took effect on Sunday as well. Chinese Communist Party’s newspaper Global Times wrote on Sunday that new tariffs were turning point in the trade war while adding US superficial prosperity was not sustainable and it was facing a bigger risk of decline.
Data released today showed manufacturing sector in Japan contracted for the fourth month in August. While manufacturing PMI declined from 49.4 to 49.3, slowdown in China and weakening global demand caused production cuts. Moreover, new sales tax hike in October is expected to further increase pressure on the sector.
In China, manufacturing PMI unexpectedly expanded in August and increased to 50.4 from 49.9. As manufacturers’ sentiment continued to remain weak, domestic demand slightly increased but this was mostly due to falling product prices. Furthermore, the recovery in manufacturing is expected to be short-term while downside pressure on Chinese economy will likely remain in the the long term with slowing global economy and weakening demand alongside with trade war with the US.
In Europe, Eurozone’s manufacturing PMI contracted for the seventh month in a row in August due to weak demand dashing optimism. Data showed manufacturing PMI slightly increased to 47 from 46.5 however pessimism remained for upcoming months. European Central Bank is expected to cut the rates this month to stimulate slowing bloc’s economy.
In the UK, manufacturing has seen the sharpest contraction in seven years in August amid political uncertainty and global trade tensions. While weakening domestic and foreign demand was effective in this, UK economy is now facing a risk of recession as the country contracted in the Q2 and will likely contract again in Q3.