After falling sharply due to trade truce following Trump-Xi meeting at G20, gold prices rose to 1-week high on Wednesday due to dashed hopes that resumed trade negotiations would quickly lead to a trade deal between two countries as well as escalating trade tensions between the US and EU. US President Donald Trump said a deal with China would have to be tilted in favour of the US while White House trade advisor Peter Navarro said talks were going well and added it would take some time to reach a trade deal as he said there were fundamental issues to be solved. In the meantime, Cleveland Fed President Loretta Mester said a rate cut in July could reinforce negative sentiment about the deterioration in the outlook. Bank of England Governor Mark Carney said there were growing risks regarding global trade war and no-deal Brexit while adding the economy might need support to cope with a downturn. On economic data side, services PMI all around the world was mixed in June following weak manufacturing data released earlier this week.
Despite trade truce between the US and China, dashed hopes that trade negotiations would lead to a trade deal between two countries as well as escalating trade tensions between the US and EU caused risk-off sentiment and increased safe haven demand, so gold prices rose to 1-week high on Wednesday.
As of 14:30 GMT+3, spot gold was trading at $1,423.22 an ounce while dollar index was at 96.68. US 10-year Treasury yield dropped below 2 due to dovish central banks and was at 1.96.
Phillip Futures analyst Benjamin Lu said on Reuters that weak manufacturing data and US trade protectionism led investors from risky assets to gold while SMC Comtrade’s Vardana Bharti stated dovish major central banks supported gold prices.
Hopes were dashed that resumed trade negotiations between the US and China would quickly lead to a trade deal as US President Donald Trump said yesterday that a trade deal with China would have to be tilted in favour of the US. Moreover, White House trade advisor Peter Navarro said talks were going well while adding there were fundamental issues to be solved and it would take time to reach a trade deal. Navarro also said low-tech chips were allowed to be sold to Huawei but their stance against Huawei’s 5G technology remained unchanged and they would not sacrifice anything for cheap political trick.
Fed is expected to cut the rates in July but Cleveland Fed President Loretta Mester said yesterday that the economy was strong despite downside risks and a rate cut in July could reinforce negative sentiment about the deterioration in the outlook. She also said she needed to gather more information before considering a change in monetary policy stance.
Bank of England Governor Mark Carney said yesterday that there were growing risks regarding global trade war and no-deal Brexit while underlining the economy might need help to cope with a downturn. Carney said, recent actions raised the possibility that trade tensions could damage the global economy more than previously anticipated while adding monetary policy could be limited and suggested fiscal policy would be needed to prevent an economic shock. On the contrary of other major central banks, BoE has not changed its plans to gradually hike the rates if the UK leaves EU with a deal.
On economic data side, data released today showed that services sector’s performance was mixed in June following weak manufacturing data released early in the week. In China, Caixin services PMI was down to 52 from 52.7 in June while in the UK, it decreased to 50.2 from 51. In France, it was down to 52.9 from 53.1 while in Germany, where services sector keeps supporting slowing economy, services PMI was up to 55.8 from 55.6 as well as in Italy where it increased to 50.5 from 50. Eurozone total services PMI was also slightly up to 53.6 from 53.4 while composite index, which is accepted as a better indicator of economic performance, was up to 52.2 from 52.1.