Gold prices weakened further on Tuesday amid stronger dollar after falling sharply following strong US jobs data released last Friday while Fed Chair Jerome Powell’s speech on Wednesday and Thursday before the Congress will be under spotlight. World Gold Council reported on Monday that central banks continued to buy gold in May and year-to-date gold purchase was 73% more comparing to the same period last year. After reaching a trade truce following G20 summit last month, trade talks between the US and China are expected to resume this week while it was stated there were little signs of progress regarding disagreements between two sides. In addition to this, risks are rising that recent trade dispute between Japan and South Korea could turn into a trade war.
After falling below $1,400 an ounce due to dashed hopes of Fed’s aggressive rate cut in July following strong US jobs data in June, gold prices continued to weaken further on Tuesday amid stronger dollar.
As of 15:28 GMT+3, spot gold was trading at $1,394.30 an ounce while dollar index rose to 97.54. US 10-year Treasury yield was also up to 2.060.
Phillip Futures analyst Benjamin Lu said on Reuters that weakness in gold prices was largely due to decreasing rate cut expectations and recovery in bond yields while adding the markets were still pricing 25 basis point rate cut however sentiment for gold eased and dollar got stronger.
Fed Chair Jerome Powell’s statement tomorrow and the following day before the Congress ahead of FOMC meeting at the end of July will be under spotlight. Considering slowing economy, geopolitical tensions, trade war and market expectations, Powell is expected to signal a 25 basis point rate cut at the end of July however some analysts warned Powell might not be as dovish as expected.
In a recent report by World Gold Council (WGC) published on Monday showed central banks’ interest in gold persisted in May as they bought 35.8 tons of gold in May. Year-to-date gold purchase by central banks was 247.3 tons which was stated to be 73% more comparing to the same period last year. Russia was the biggest purchaser year-to-date while it was followed by China and Turkey respectively. It was stated that central banks’ interest in gold was due to reserve diversification and lowering US dollar impact on their economies while countries having political and economic dispute with the US, especially China and Russia, preferred having gold holdings instead of US dollar.
In the meantime, trade talks between the US and China are expected to resume this week as two sides agreed on a trade truce following Trump-Xi meeting at the end of June while it was stated there were little signs of progress regarding disagreements between two sides. According to Reuters, sides insisted on not making any concessions to each other as the US continued to demand solutions to technology transfer, opening Chinese market to US companies and protecting intellectual property rights while on the other hand China insisted on lifting current US tariffs and demanding a fair trade deal. Moreover, the US allowed US companies to sell low-tech equipments to Chinese company Huawei however US Commerce Department decided to keep Huawei in its blacklist while China was reluctant to import huge amount of agricultural products from the US until a trade deal between sides.
While uncertainty around US-China trade relations persist, there are rising risks that trade dispute between Japan and South Korea could turn into a trade war this time. Tensions escalated following Japanese government’s decision to curb exports to South Korean tech companies, which took place on 4th of July, and now, Japanese exporters need a permission to sell to South Korean tech firms. South Korean side stated they would take necessary measures according to international laws while South Korea President Moon Jae-in said restrictions would hurt global supply chain. Moon also warned Japan to withdraw the restrictions and called for talks to solve problems. Japan’s decision to restrict exports came after South Korean court demanded compensation to be paid to South Korean victims of wartime forced labour in the second world war. It was stated that dispute between two countries could last months if it turned into a tit-for-tat trade war.