Gold is in an unsurprising pull back this morning after ending yesterday strong. The yellow metal closed the December contract on Comex at a record high for 2019 as investors continued their flight to safety, capping a week that included wild swings in equity markets, fears that the global economy is heading for a recession and negative bond yields.
December gold futures settled at $1,531.20 Thursday on Comex and gained 1.5% in the first four days of the week. Currently, the December contract is at $1,518.80, off by $12.40.
“Gold is consolidating here. The important consideration is that none of the headwinds have gone away; the tariffs got delayed a bit, but the underlying trade war remains and lower yields are supportive for gold,” Ilya Spivak, senior currency strategist with DailyFx told Reuters.
China on Thursday called threatened U.S. tariffs a violation of agreements between Presidents Donald Trump and Xi Jinping and vowed to retaliate. Meanwhile, Trump said in an interview that any deal with Beijing must be “on our terms.”
China has severely restricted imports of gold since May, Reuters reported, citing unidentified bullion industry sources with direct knowledge of the matter. The world’s second largest economy has cut shipments by some 300-500 metric tons compared with last year – worth $15-$25 billion at current prices, the people said, speaking on condition of anonymity because they aren’t authorized to speak to the media.
In economic news, U.S. retail sales rose by the most in four months in July, data showed Thursday. But manufacturing output declined in the month. The University of Michigan’s consumer sentiment survey is due out Friday.
In this morning’s U.S. economic news:
- U.S. Consumer sentiment dropped 92.1 for August, a seven-month low and well below Wall Street’s expectations. The drop is attributed to growing fears over the effect of the trade wars on the economy.
- Housing data came in mixed with Housing Permits for July hitting a 2019 high driven by lower interest rates, while housing starts for July fell by 4% from June.
- While the Dow was up at the opening bell this morning, it is still likely to have its worst week of the year.
Expectations are growing that the U.S. Federal Reserve will follow its July 31 rate cut with a second one in September. The CME FedWatch Tool put the odds of a Sept. 18 rate cut at 100% early Friday. The probability of a 25-basis-point reduction is 78.8%, and the likelihood of a 50-basis-point cut at 21.2%.
Investors will seek signals on monetary easing and the outlook for the global economy when policymakers from around the world gather next week at the Fed’s annual Economic Policy Symposium in Jackson Hole, Wyoming. The event, scheduled for Aug. 22-24, gathers dozens of central bankers, policy makers, academics and economists.
Silver futures slipped 0.4% Thursday to settle at $16.931 an ounce on Comex, but the September contract’s 1.7% rally for the first four days of the week has outpaced gold’s. Currently, the September contract is at $17.075.
Spot platinum slipped 0.5% and dropped 2.3% in the first four days of the week. Spot palladium increased 1.4% Thursday and rose 1.7% in the first four days of the week.
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