Gold starts the week steady after having weekly gain last week due to rising expectations of a rate cut by Fed at the end of July. Yellow metal is still supported by global growth worries which increased following weak Asian data released last Friday however strong inflation from the US showed slowdown in the economy was not as quick as previously anticipated. While uncertainty around US-Sino trade relations persists, it is stated that US firms will restart selling tech equipments to Chinese tech company Huawei soon after they get licences to be issued by US Commerce Department. In the meantime, data released in China showed today that the economy showed the weakest growth performance in 27 years in Q2 while retail sales and industrial production showed improvement in June.
After having weekly gain last week by finding support from Fed Chair Jerome Powell’s dovish statement that signalled a rate cut at the end of this month, gold prices little changed on Monday.
As of 17:00 GMT+3, spot gold was trading at $1,413.94 an ounce while dollar index was steady at 96.86. US 10-year Treasury yield decreased to 2.096.
OCBC Bank economist Howie Lee said on Reuters that better-than-expected Chinese data eased worries on slowing global economy while adding global economic outlook was still weak. He added gold was still strong as a hedge due to uncertainty around US-Sino trade relations and geopolitical tensions in the Middle East.
It is stated that US firms will restart selling tech equipments to Chinese company Huawei soon after they get licences to be issued by US Commerce Department. Speaking to Reuters, US officials said licences could be issued in as soon as two weeks while Huawei officials stated the company should be excluded from “entity list” instead of issuing temporary licences to US firms to be able to sell to Huawei.
After trade tensions between the US and China escalated, US Commerce Department had prohibited US firms from selling tech equipments to Huawei and announced blacklisting the company. However, after Trump-Xi meeting last month, US President Donald Trump said US firms could sell tech equipments to Huawei and US Commerce Department eased restrictions and allowed selling the Chinese tech company as long as it did not pose threat to national security. US companies currently continue selling equipments already provided to Huawei before but they are prohibited from selling new technologies. US officials said licences could be issued in 2-4 weeks but the criteria for licence approval is still unclear.
In the meantime, data showed today that Chinese economy, which has been hurt by trade war with the US and weakness in domestic/foreign demand, slowed to 6.2% from 6.4% in Q2, showing the weakest performance in 27 years. In addition to this, retail sales and industrial production improved due to economic stimulus, increasing by 9.8% and 6.3% respectively in June however it is not expected to sustain.
Hwabao Trust economist Nie Wen said on Reuters that China could slowdown to 6% in the second half of the year and reserve requirement ratios could be cut again since Chinese government wanted to stimulate the economy in the long term while underlining slowdown would continue until mid-2020 when the economy was expected to rebalance.
On the other hand, State Information Centre chief economist Zhu Baoliang said Chinese exports would continue to weaken due to global economic slowdown as well as impacts of trade war and stated exports would likely show no growth this year. Data released last Friday had showed exports declined by 1.3% while imports contracted by 7.3% in June. Today’s data showed economic stimulus might have started impacting the economic performance however more stimulus is expected due to persisting weakness in Chinese economy.