After rising quickly on Monday due to escalation in geopolitical tensions in the Middle East, gold prices little changed on Tuesday and kept close to psychological level $1,500 ahead of Fed’s two-day meeting starting today. Natixis said in a recent report that Fed would cut the rates two times this year but this would end by Q2 next year and gold prices would struggle to go up in the second half of 2020. In the meantime, China’s central bank kept the rates on hold but extended medium-term loans to keep the market liquid. On economic data side, data released today showed economic sentiment in Germany and Eurozone was up but economic outlook remained negative.
Gold prices steadied on Tuesday ahead of Fed meeting starting today after rising sharply on Monday due to higher safe haven demand following the escalation in geopolitical tensions in the Middle East.
As of 14:55 GMT+3, spot gold was trading at $1,500.05 an ounce while dollar index was at 98.57. US 10-year Treasury yield was down to 1.819.
Phillip Futures analyst Benjamin Lu said on Reuters that the market was looking for a catalyst while adding 25 basis point was mostly priced and focus would be on forward guidance. Lu also said gold prices could fall sharply in short term if the Fed was to go against the market expectations. According to CME Group FedWatch Tool, 25 basis point rate cut is seen as 68.1% possibility while chance for no change in the rates rises to 31.9%.
In its recent economic outlook, Natixis said gold would continue its upside movement in the short term but it would likely be hard to sustain in the second half of the next year. Bank’s precious metals analyst Bernard Dahdah said prices would go up to $1.560 and average price for this year would be $1.400 while adding that average price for the next year increased to $1.420 from $1.370. Regarding Fed’s interest rate policy, he expects Fed to cut the rates two times this year but this will likely end until the Q2 of 2020 as he also said US President Donald Trump would try to reach a deal with China. Moreover, he expects Russia, China and Kazakhstan to continue purchasing gold next year.
In the meantime, in China where the economy has been suffering an ongoing weakness, China’s central bank (PBoC) kept the rates on hold today and extended medium term loans worth approximately $28 billion. Standard Chartered Asia chief economist Ding Shuang said all indicators showed downside risks were weighing on the economic outlook and pointed out a rate cut while adding that the central bank stepped back from further easing due to higher pork prices. Besides, it is stated that PBoC officials think the liquidity is enough following the bank’s reserve requirement ratios cut in early September.
On economic data side, data released today showed economic sentiment in Germany and Eurozone was up but still remained in negative territory. According to the data, ZEW economic sentiment index increased to -22.5 from 44.1 in September while current conditions index was down to -19 from -13.5. Eurozone’s ZEW economic sentiment index was also up to -22.4 from -43.6. As the data showed economic sentiment in Germany and Eurozone deteriorated in a slowed pace in September, ZEW President Achim Wambach said economic outlook remained negative but worries for further escalation in US-China trade war had not come true. Wambach also said there was still hope to avoid no-deal Brexit and stated European Central Bank eased its monetary policy to lower the economic risks in the bloc’s economy.