HomeContributorsFundamental AnalysisGold Gains Ground on Trade War Concerns

Gold Gains Ground on Trade War Concerns

Gold has posted strong gains in the Thursday session, after trading sideways on Wednesday. In North American trade, the spot price for an ounce of gold is $1313.89, up 0.69% on the day. On the release front, unemployment claims edged up to 211 thousand, easily beating the estimate of 225 thousand. In the services sector, ISM Non-Manufacturing PMI dropped for a third straight month, coming in at 56.8 points, above the estimate of 56.1 points. On Friday, the US releases three employment indicators – wage growth, nonfarm payrolls and the unemployment rate.

As expected, the Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, which said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.

The US has sent a trade delegation to China to discuss recent tensions in relations between the two countries over tit-for-tat tariffs. However, the markets are not expecting any breakthrough, as the delegation will be in China for only a few days. China and the US have engaged in a nasty trade battle, imposing stiff tariffs on a wide range of products. If the two sides do not display some flexibility and goodwill, there are fears that the tariffs could lead to a global recession. A trade war between the world’s largest two economies would be a lose-lose for both China and Beijing, but would be a boon for gold, which is a traditional safe-haven asset in times of trouble.

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