Gold weakens further on Tuesday and trades below four-month low it hit last week due to strong US and Chinese data. As geopolitical tension is on the rise due to Trump administration announcing yesterday the decision of not reissuing waivers regarding Iranian sanctions which will end on May 2, gold is not seen supported by this since strong dollar and increasing equities weigh on yellow metal. In the meantime, while the US and China are planning to start next round of trade negotiations next week, it is stated that a possible trade deal will not likely ease the tension between two economic powers.
While growth concerns eased following strong US and Chinese economic data, gold prices remained weak on Tuesday after starting the week with a slight increase.
As of 16:02 GMT+3, spot gold was trading at $1,267.15 an ounce while dollar index increased to 97.63. US 10-year Treasury yield edged down to 2.578.
Trump administration announced yesterday that they would not be extending the due date of exemption from Iranian sanctions which would end on May 2 and said all countries importing oil from Iran would be subject to sanctions as of May 2 if they keep their imports. US State Secretary Mike Pompeo said decrease in oil supply would be compensated by Saudi Arabia and United Arab Emirates while countries importing oil from Iran – China, India, South Korea, Japan and Turkey, opposed the decision.
China State Secretary spokesman Geng Shuang said they opposed unilateral US sanctions and added that their trade with Iran was open, transparent and lawful as he underlined that this should be respected. Indıa, second largest Iranian oil importer after China, said they simply could not cut all imports at once as they already cut half of the oil imports from Iran. Indian officials said they were expecting an exception from possible sanctions. South Korea said their facilities were set up especially to process Iranian oil while Turkey stated they rejected any kind of unilateral sanctions on how to conduct relations with its neighbors. And Japan said cutting oil imports from Iran would not have significant effect since their oil import from Iran covered only 3% of all of its oil imports.
OANDA senior market analyst Jeffrey Halley said on Reuters that rising geopolitical tension between the US and Iran supported gold prices but increase in oil prices did not change the general appeal towards yellow metal since gold was pressured by strong dollar and increasing equities.
There is a historical correlation between gold prices and oil since yellow metal is used as a hedge against oil-led inflation.
In the meantime, the US and China will resume the next round of trade talks next week as US officials will be visiting Beijing on April 29. While optimism over trade talks ending with a deal remains, it was stated that possible trade deal would not ease the tension between the world’s two biggest economies, in an article on BBC. While it was stated that the tension was high because of different worldviews rather than trade conflicts, effect of a possible trade deal was claimed to be limited and short term. According to the article, two countries were in a power struggle to become number one technology provider in the world, referring to the recent events about Chinese tech company Huawei. In the article, it was also stated that the term “cold war” was over-used over relations between the US and China, while adding it was increasingly looking like so.