While effects of high trade tensions between the US and China persist, gold prices steady, pressured by increasing dollar index. It is stated that there is a lack of momentum in gold prices despite high trade tensions, geopolitical disagreement between the US and Iran, low bond yields and decreasing global equities since strong dollar is the only safe haven weighing on yellow metal. Morgan Stanley said yesterday that in case of trade talks stalling, ending without a deal and US imposing tariffs on remaining Chinese goods, there would be a recession in the world economy. St. Louis Fed President James Bullard said trade dispute between two countries would harm US economy only if it lasted long. In the meantime, Fed Chair Jerome Powell said yesterday that corporate debt was in record level but posed no risks to the financial system.
Gold is weighed on by strengthening dollar which is supported by strong US economy while effects of trade tensions between the US and China due to the US blacklisting Chinese tech company Huawei persist.
As of 14:20 GMT+3, spot gold was trading at $1,275.17 an ounce while dollar index edged up to 98.10. US 10-year Treasury yield was also slightly up to 2.425.
Saxo Bank commodity analyst Ole Hansen said on Reuters that investors were sidelined by the lack of momentum in gold prices despite rising trade tensions, instability in the Middle East, decreasing global equities and 18-year low bond yields while adding dollar was seen as the only safe haven at the stage.
Morgan Stanley chief economist Chetan Ahya said in a note on Monday that in case of trade talks stalling, ending without a deal and US imposing 25% tariff on remaining Chinese imports worth $300 billion, there would be recession in the world economy. Ahya said if there was no solution to trade dispute between the US and China, central bank officials would have to adapt to the situation and change the monetary policy in line while adding Federal Reserve would cut the rates all the way back to zero by 2020 spring to support deteriorating economy. Ahya also said investors were underestimating the effects of trade war and warned China could take non-tariff measures like limiting purchases while adding companies would not likely fully pass through the rising costs to their customers.
St. Louis Fed President James Bullard said on Monday that it would need to last long for trade conflict to really harm US economy. Bullard said US economy was big and effects of trade war would be relatively small while adding the situation drew more attention outside the US since small, open and trade-reliant economies would suffer if trade patterns were to be disturbed by the trade conflict.
In the meantime, Fed Chair Jerome Powell said yesterday that corporate debt was in record level and borrowers could face risks in case of economic slowdown while adding this posed no threat to the financial system. Powell said companies with high debt would not likely be able to roll over their debts in case of rising interest rates and stated they were still assessing ”the potential amplification of such stresses on borrowers” while adding the risks were moderate for now.