Gold prices increased on Friday as uncertainty rose around Trump-Xi meeting, after yellow metal slipped from 6-year high following Fed officials dashing aggressive rate cut expectations and claims that the US and China had agreed on a truce ahead of the meeting tomorrow. At G20 summit kicked off today, world leaders warned against trade protectionism while The Wall Street Journal’s report stating that Chinese leader Xi Jinping was prepared to put forward preconditions for a trade deal with the US raised concerns. On the other hand, White House Economic Advisor said Trump had no preconditions to start negotiations while Trump said he expected the meeting to be productive. Regarding Fed’s policy, San Francisco Fed President Mary Daly said it was early to say whether a rate cut would be necessary. In the meantime, data showed today that Japan’s industrial production increased strongly in May.
After gold prices deepened losses yesterday following news that the US and China had agreed on a truce ahead of G20 summit, yellow metal rose on Friday due to increasing concerns around Trump-Xi meeting since Chinese leader Xi was reported ready to put forward preconditions including lifting ban on Huawei and removing all punitive tariffs on Chinese goods for sides to reach a trade deal.
As of 15:22 GMT+3, spot gold was trading at $1,412.24 an ounce while dollar index was down to 96.12. US 10-year Treasury yield little changed at 2.012.
ANZ analyst Daniel Hynes said ongoing tensions around the talks between the US and China helped gold while adding preconditions from China side reminded the market that it would be tough process to get the trade talks going again.
White House Economic Advisor Larry Kudlow said yesterday that US President Donald Trump wanted to start negotiations again and had no preconditions to meet Chinese leader Xi Jinping while adding they could go back to talks from the point where it was in May in case of a positive outcome of the meeting. Kudlow added new tariffs would be still on the table if it was necessary.
At G20 summit which kicked off today in Japan, world leaders underlined that trade protectionism had been damaging the world economy. EU Commission President Jean-Claude Juncker said trade dispute between the US and China contributed slowing global economy while Chinese leader Xi Jinping said trade order was harmed and this had been overshadowing stability and peace in the world. On the other hand, Russian President Vladimir Putin said trade was damaged by protectionism and politically motivated restrictions while US President Donald Trump said he expected the meeting tomorrow to be productive. Trump also said he did not promise postponing additional tariffs for six months.
Regarding Fed policy, San Francisco Fed President Mary Daly said on Thursday that it was early to say whether a rate cut would be necessary and how much it would be. Daly also said, if economic data deteriorated, this would indicate it was necessary for Fed to change its current policy.
In the meantime, data released today showed that industrial production in Japan increased strongly in May. Although industrial production rose by 2.3% and showed the best performance since February 2018, this was reported to happen due to rising car production ahead of tax increase possibly in October. So, economic outlook is not optimistic for Japan as the country’s economic indicators such as exports persist to be weak due to global economic slowdown and ongoing trade dispute.