As optimism around trade talks faded, investors remained cautious and gold prices continued to trade in a range on Tuesday. The US and China agreed on the first phase of possible trade deal however US side stating that it was still possible for the deal to be broken and China side demanding more trade talks before signing the first phase of the deal increased uncertainty and showed that the deal was on a knife edge. In the meantime, Standard Chartered Bank said in its last report that gold prices would continue to rise due to weakness in US yields and Fed’s monetary easing. On economic data side, data released today showed that producer prices in China continued to fall in September while consumer prices rose above expectations due to higher food prices.
As trade deal between the US and China being on a knife edge led investors to remain cautious, gold prices continued to trade in a range on Tuesday.
As of gold 14:55 GMT+3, spot gold was trading at $1,494.12 an ounce while dollar index was at 98.51 US 10-year Treasury yield was down to 1.691.
Trade optimism faded following statements from both US and China side. US side said scheduled trade tariff increase in December would take effect if there was no deal with China even though sides agreed on the first phase adding that it could still be broken while China side demanded more trade talks before signing the deal possibly next month. It was also claimed that China asked for suspension of tariff increase in December as well after the US suspended tariff increase previously scheduled to take effect this week.
In the meantime, Standard Chartered Bank said in its report yesterday that gold prices would continue to rise due to weakness in US yields and Fed’s monetary easing. According to the report, the bank expects prices to be $1,510 on average at the end of this year and this will increase to $1,570 by the end of next year. Bank’s precious metal analyst Suki Cooper pointed out rising ETF holdings and gold would be supported by retail buyers from that point while adding that retail investors was waiting to be sure of monetary easing cycle and weakening equity markets. The report also underlined Brexit and geopolitical tensions and stated monetary policy and geopolitical risks would remain supportive for gold prices.
On economic data side, data released today showed Chinese producer prices fell the sharpest in September while consumer prices rose above expectations mostly due to rising pork prices. According to the data, producer prices declined 1.2% in September and consumer prices increased 3%. Seeing the sharpest decline since July 2016, producer prices could still continue to decline with weak domestic demand, falling energy and raw material prices alongside with tax cut in April while consumer prices are expected to increase further due to rising food prices including pork. However, this is not expected to have an impact on China central bank’s monetary policy since rising food prices are due to supply shock.