Gold prices rose above $1,500 on Friday once again by finding support from worries on global economic outlook due to recent escalation on trade front after yellow metal consolidated on Thursday. As gold is expected to rise further due to increasing uncertainty and volatility, Merrill Lynch head of metals research Michael Widmer said yellow metal could hit $1,600 with central banks going for looser monetary policy. In addition to this, US President Donald Trump continued criticizing Fed as he said high interest rates had been making it harder for American manufacturers to compete and reiterated the central bank should cut the rates. According to data released on Friday, producers prices declined for the first time in three years in China while consumer prices increased more than expected. Moreover, Japan’s economy grew well above expectations in the Q2, supported by household consumption and business investments.
Gold rises above $1,500 on Friday once again but sees strong resistance around this level as yellow metal has been supported by rising safe haven demand due to escalation in trade tensions which pose risks to global economic outlook.
As of 15:55 GMT+3, spot gold was trading at $1,498.88 an ounce while dollar index was down to 97.51. US 10-year Treasury yield edged down to 1.704.
ANZ analyst Daniel Hynes said on Reuters that developments on trade front had been the driver of markets this week while adding gold was supported with markets pricing further rate cuts.
Merrill Lynch head of metals research Michael Widmer said on Bloomberg that their base scenario was $1,500 an ounce in the Q2 next year while underlining gold could hit $1,600 an ounce as central banks would continue easing their monetary policies.
In addition to this, US President Donald Trump continued criticizing Fed yesterday and reiterated his call for further rate cuts. Trump said, higher interest rates comparing to other countries had been hurting American manufacturers and making it harder for them to compete. According to CME Group FedWatch Tool, there is now 88.1% chance of 25 basis point rate cut in September.
According to data released today in China, producer prices declined for the first time in three years and consumer prices increased above expectations as data showed producer prices decreased 0.3% in July and consumer prices increased 2.8%. Producers prices declined due to manufacturers cutting their prices and being reluctant for further investments following US tariffs as weak demand started affecting production expectations. Besides, manufacturers are facing risks of bankruptcy and having trouble to pay back their debt as falling prices causes declining profits as well. While consumer prices increased due to surging food prices, this is expected to weigh on household confidence as falling producer prices would pressure manufacturer profits further. Chinese government will likely take measures for further fiscal stimulus while Chinese central bank is expected to go for further monetary easing.
In Japan, data showed today that the economy grew well above expectations in the second quarter by 1.8%, supported by household consumption and business investment. Private consumption, which accounts for 2/3 of the economy, increased 0.6% while capital expenditures rose 1.5%. Even though weaker global demand was compensated by increasing domestic demand, support from domestic demand could fade away following planned tax increase in October and delaying recovery in global demand would further weigh on Japanese economy.