As volatility in gold market increased following European Central Bank’s decision to cut the rates and introduce bond buying program, optimism regarding US-China trade dispute weighed on gold prices but yellow metal tries to keep above $1,500 an ounce on Friday. Following gestures from each side ahead of high-level trade talks in early October, US President Donald Trump said he was open to a temporary trade deal and he would consider it even though he preferred permanent one. However, economists polled by Reuters think trade relations between the US and China will either worsen or stay at the same level until the end of next year.
Reviving trade optimism increased risk sentiment and weighed on gold prices on Friday due to falling safe haven demand and volatility increased in gold market after ECB’s announcement for more monetary stimulus.
As of 15:53 GMT+3, spot gold was trading at $1,501.86 an ounce while dollar index was down to 98.14. US 10-year Treasury yield increased to 1.836.
Religare Broking Ltd vice-president Sugandha Sachdeva said on Reuters that gold prices declined after trade tensions cooled while adding that next wave of move for gold prices would be Fed meeting next week.
European Central Bank (ECB) cut the rates by 10 basis point to 0.5% yesterday while announcing its new bond buying program worth €20 billion each month as of November. ECB President Mario Draghi said downside risks to Eurozone economy increased while underlining the decision was made by many policymakers’ support. Draghi also said monetary measures would have limited effect on slowing Eurozone economy and called governments to increase their fiscal expenditure.
Federal Reserve is also expected to cut the rates next week. TD Economics senior economist James Orlando said on Reuters that political environment posed risks for the economic outlook while stating the Fed would cut the rates since it had seen that trade risks started to bleed into economic data.
In the meantime, following gestures of good will from each side ahead of high-level trade talks expected in early October, US President Donald Trump said he was open to temporary trade deal with China and he would consider it even though he preferred a permanent one. According to the claim, US side would offer lowering current tariffs or postponing planned tariffs on Chinese goods in return for protection of intellectual property rights and commitment to buy more agricultural goods from the US.
Despite cooling trade tensions recently, economists polled by Reuters think trade relations between the US and China would either worsen or stay in the same level until the end of next year. As protectionism is seen as the biggest threat to world economy, BNP Paribas economist Andrew Schneider said there was no change in planned tariffs that were expected to take place in October and December and stated there could be more talks but they were not expecting a resolution anytime soon. Schneider also said it was likely that trade relations would worsen rather than sides agreeing on a trade deal.