As all eyes are on Fed’s interest rate decision later today, gold prices little changed on Monday as traders hold off. Fed is expected to cut the rates by 25 basis point however how dovish Fed statement will be and whether it will sign further monetary easing will be under spotlight. In the meantime, two-day trade talks between the US and China in Shanghai ended without any major progress and sides agreed on further talks. Weakness has continued in Chinese economy ever since the beginning of trade war with the US as data released today showed manufacturing continued to contract in July. On the other hand in Eurozone, flash data released today showed bloc’s economy slowed in the Q2 and inflation fell in July even though unemployment decreased in June.
As investors await for Fed’s interest rate decision due to be announced later today, dollar index holds tight above 98 and gold prices little changed on Wednesday. According to CME Group’s FedWatch Tool, Fed is expected to cut the rates twice this year, one later today and one in September.
As of 16:32 GMT+3, spot gold was trading at $1,431.14 an ounce while dollar index was at 98.03. US 10-year Treasury yield was steady at 2.061.
GoldSilver Central managing director Brian Lan said on Reuters that gold prices could decline after Fed’s decision since 25 basis point rate cut was already priced while adding even though outlook was positive in the long term, there could be a correction in gold prices in the short term.
As yellow metal has found support from US-China trade dispute in the long term, two-day trade negotiations between sides in Shanghai ended without a major progress. It was expected that US and Chinese officials would show goodwill in the first face-to-face trade talks following trade truce at G20 summit however it was stated that disagreements between sides about major issues persisted. US President Donald Trump accused China of reneging from its earlier commitments and underlined it would be worse for China if it waited for 2020 presidential elections in the US to reach a trade deal.
While Chinese economy has continued to weaken ever since the beginning of the trade war with the US, data released today showed manufacturing PMI slightly increased in July however contracted for the third consecutive month. Manufacturing PMI increased to 49.7 from 49.4 in July and continued to stay below 50 which separates contraction from expansion, as export orders declined due to weakness in global demand. Moreover, weakness in domestic demand persisted despite government stimulus while some manufacturers reported lowering their production due to falling purchasing orders and some others moved their operations to other Asian countries to avoid additional US tariffs. However, economists say it will take time for government stimulus to have an impact on the economy while it was stated that large manufacturers recovered by finding support from economic stimulus but conditions for small and medium sized manufacturers continued to deteriorate. Weakness in manufacturing will likely worsen further before expected recovery as long as trade dispute between the US and China persists while more monetary easing is expected in the coming months.
On the other side of the world in Europe, flash data released today showed bloc’s economy slowed in the Q2 and inflation weakened in July even though unemployment declined in June. According to Eurostat, Eurozone economic growth fell to 0.2% monthly in July while annual growth edged down to 1.1% from 1.2%. In addition, unemployment rate hit 11-year low as it decreased to 7.5% from 7.6% in June while inflation weakened further and fell to 1.1% from 1.3%. Core consumer inflation, which European Central Bank (ECB) monitors closely in deciding its monetary policy, also fell to 0.9% from 1.1%, supporting expectations that ECB will cut the rates in September as it targets 2% inflation rate in Eurozone.