Gold Rises Amid Rising Trade Uncertainty and Geopolitical Tensions.

After having reached its first weekly gain in four last week due to US President stating that he was not looking for a partial deal with China and the US announcing its new sanctions on Iran, gold prices kept its strong position and inched up on Monday.

On economic data side, data released today showed economic conditions continued to deteriorate in Eurozone with manufacturing in Germany and France weakening further in September and the bloc’s economy now faces a risk of negative spillover effect from manufacturing sector to considerably well performing services sector. On the other hand, in the US, data released today showed manufacturing recovered and composite PMI index unexpectedly rose in September however falling employment posed risks to the economic outlook.

Trade optimism slightly fades away ahead of high-level talks between the US and China due in October which supported gold prices alongside with ongoing geopolitical tensions in the Middle East.

As of 17:40 GMt spot gold was trading at $1814.55 an ounce while dollar index was up to 98.66. US 10-year Treasury yield was down to 1.677.

US President said on Friday that Chinese purchase of US agricultural products would not be enough and comprehensive trade deal would take some time while adding that he was not looking for a partial deal with China.

After the US and Saudi Arabia have taken Iran responsible for the attack on Saudi oil facilities, the US announced its new sanctions on Central Bank of Iran alongside with some other corporations. However, new sanctions are expected to have limited impact as previous sanctions have already dried up Iran’s oil revenues and cut the ties of Iranian central bank from the financial world.

On economic data side, data released today increased worries on global economic conditions.

The global deceleration will be broad-based, and the 2023 projection is less than half of last year’s 6 percent expansion. Countries accounting for about a third of the global economy are estimated to have a two-quarter contraction in real gross domestic product this year or next. 

IMF

In France, IHS Markit manufacturing PMI declined to 50.3 from 51.1 while services PMI fell to 51.6 from 53.4. Thus, composite PMI fell to 41.4, four-month low, from 43.5. Data also showed manufacturing output contracted as the index fell to 49.7 from 50.7 however it was balanced by still expanding services sector.

In Germany, the bloc’s largest economy, contraction in manufacturing sector deepened while services sector stayed in expansion territory despite weakening. According to data, manufacturing PMI declined to 41.4 from 43.5, worst performance in 123 months, while manufacturing output index was down to 86-month low at 42.7 from 45.8. Services sector continued to expand as services PMI fell to 52.6 from 54.8 while composite index indicated contraction since it decreased to 49.1 from 51.7. Weakening employment is expected to weigh on services sector and it was stated that the economy might not see growth until the end of 2019.

Reflection of weakening indicators in Germany and France to the bloc’s economy is seen in deepening contraction in manufacturing sector and slower expansion in services sector. According to data, Eurozone manufacturing PMI declined to 45.6 from 47, showing the worst performance in 83 months, while manufacturing output index was down to 46 from 47.9. Moreover, services PMI fell to 52 from 53.5, 8-month low, composite index fell to 50.4 from 51.9 and indicated the bloc’s economy barely grew in September. Alongside with weakening employment, lower demand is expected to weigh on bloc’s economy in the coming months while the services sector is also weighed on by slowing economy, which supported economic growth in Eurozone for a long time amid weaker manufacturing.

Unlike Eurozone, manufacturing in the US picked up in September as manufacturing PMI increased to 51 from 50.3 and manufacturing output index was up to 51.7 from 50.8. Services PMI edged up to 50.9 from 50.7 and thus, composite index was up to 51 from 50.7. It was stated that the economy was weighed on by trade uncertainty and worries on economic outlook. Besides, employment declined and some companies reported to have started cutting jobs for the first time since 2010, which is expected to weigh further on US economy.