While safe haven demand increases due to persisting trade disputes and growing concerns on global economic growth, gold holds firm on Thursday after it hit the highest level since mid-February due to rising expectations of a rate cut and weak US employment data. IMF said in a note on Wednesday that imposed and proposed tariffs between the US and China would be harmful for the global economy while IMF President Christine Lagarde stated trade tensions could risk undermining investment, productivity and growth. Meeting between the US and Mexican officials on Wednesday was unsuccessful to reach a deal but sides are expected to continue talks today. In the meantime, it was seen that businesses were concerned about persisting trade tensions in Fed’s Beige Book released yesterday.
Gold prices hold firm close to more than 3-month high it hit recently by finding support from increasing safe haven demand and weakening dollar due to rate cut expectations while concerns over global economic growth increases alongside with persisting trade tensions.
As of 16:05 GMT+3, spot gold was trading at $1,337.55 an ounce while dollar index was down to 96.85. US 10-year Treasury yield edged down to 2.104.
Phillip Futures analyst Benjamin Lu said on Reuters that Fed’s stance had changed and dovish signals would support gold prices while adding yellow metal would maintain its upside momentum in the long run.
In a note released on Wednesday, IMF warned that imposed and proposed tariffs between the US and China could lower global growth by 0.5% in 2020. IMF expects global economic growth to be 3.3% in 2019 and it was underlined that the cost to the world economy would be $455 billion in case of imposing tariff to all goods traded between the US and China while IMF President Christine Lagarde said recent escalation in trade dispute would risk undermining investment, productivity and growth. However, IMF also said there were early signs that growth might have firmed up due to central banks’ slowing down their monetary policy normalization while adding expected recovery in the global economic activity would come with risks such as persisting or even escalating trade disputes, no-deal Brexit and delayed sustainable growth in China due to its economic stimulus program. Lagarde underlined there was no risk for a recession however recent trade dispute with Mexico was a cause of concern.
Meeting between the US and Mexico on Wednesday was unsuccessful to reach a deal. While it was stated that talks focused on illegal immigration issues, US President Donald Trump said there was progress but it was not enough. As there are few days left until 5% tariff takes effect on June 10, talks will continue on Thursday.
In Fed’s Beige Book released on Wednesday, it was stated that economic activity slightly moved upward in May. However it was seen that businesses were concerned due to persisting trade tensions and expected economic activity to go down in case of trade disputes between the US and China going unsolved but some businesses were still optimistic that trade deal would be reached. One point to mentions is that possible effects of recent trade dispute with Mexico on economic activity cannot be seen in this Beige Book since the report was prepared to indicate sentiment before May 24.