While trade tensions seem to calm down due to US easing restrictions on Huawei for 90 days, gold is weighed on by strong dollar ahead of Fed minutes. As there is no scheduled meeting between the US and China yet, China’s ambassador to the United States said Beijing was ready to resume trade talks.
In Fed minutes to be released later today, it will be under spotlight whether Fed officials discussed a rate cut considering trade war ve slowing economy. Boston Fed President Eric Rosengren said there was no reason to change rates in either way due to weak inflation and strong labor market while St. Louis Fed President James Bullard stated Fed could cut the rates if inflation weakened further. In the meantime, Japan’s exports contracted again in April for the fifth month, according to data released today.
|02 Dec 2021
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Gold prices were steady on Wednesday, pressured by strong dollar close to recent highs, while trade tensions between the US and China seemed to calm down slightly due to US easing restrictions on Chinese tech company Huawei until August 19.
As of 15:47, spot gold was trading at $1576.57 an ounce while dollar index was at 97.92. US 10-year Treasury yield was down to 2.405.
OANDA analyst Jeffrey Halley said on Reuters that US easing restrictions on Huawei was taken as a sign of trade tensions calming down while adding safe haven demand decreased.
There is no scheduled meeting between the US and China after the last round of talks which ended on May 10 however China’s ambassador to Washington Ciu Tiankai said Beijing was ready to resume trade talks. Ciu said it was American side’s fault that trade talks ended without a deal because US officials changed their minds more than once while there was a deal agreed on. Ciu also said there was no evidence for imposing sanctions on Huawei and all decisions against Huawei were backed by political reasons.
Fed’s minutes of the meeting will be released later today.
In its last meeting, Fed kept the rates on hold as well as its patient stance, so whether Fed officials discussed a rate cut due to slowing economy and weak inflation will be under spotlight. However, Fed minutes will likely have limited effect on markets due to recent escalation in trade tensions, according to some analysts.
Boston Fed President Eric Rosengren said yesterday that there was no clear direction to change interest rates due to weak inflation pointing a rate cut while strong labor market pointing a rate hike, so Fed could wait to watch economic developments. Rosengren said tariff increases would lead to rising inflation however at same time it could lower consumption while adding he hoped the US and China to resume trade talks. He also said uncertainty was not good but this would have limited effect on US economic outlook since uncertainty would likely be transitory.
St. Louis Fed President James Bullard said on Wednesday that Fed could cut the rates if inflation weakened further, even if economic growth maintained its momentum. He said global trade pattern could alter in medium term if there was no trade deal and warned Fed to carefully watch economic data.
In the meantime, Japan’s exports contracted for the fifth month in a row and decreased by 2.4% in April. Since the contraction was stated to be due to decreasing exports to China, it again proves how vulnerable Japanese economy is to trade war between the US and China. On the other hand, Japan’s trade surplus with the US increased due to car exports, which is expected to draw US President joe biden ahead of trade talks between the US and Japan this week which will be followed by a summit between two countries’ leaders later in May.