The U.S. dollar index.DXY edged higher in early Asian trading on Thursday, trading around 93.10. Spot gold staged a rebound, with the Asian market at one point in morning trading above $1,945 an ounce, up more than $20 from the session’s lows. Gold prices tumbled on Wednesday on the fed’s minutes and news of trade talks between China and the US. However, gold remains supported by geopolitical tensions. Separately, the U.S. State Department on Wednesday suspended an extradition treaty with Hong Kong, the latest sign that U.S.-China relations have soured in the weeks since China imposed a national security law on the territory. Separately, U.S. President Donald Trump said Wednesday that he is directing Secretary of State Mike Pompeo to notify the United Nations that the United States intends to reinstate sanctions against Iran.
Gold prices tumbled Wednesday on Fed minutes and U.S. -china trade news
The dollar rallied strongly on Wednesday on the fed minutes, while gold fell sharply. Spot gold closed at $1,928.71 an ounce, down $72.73, or 3.63 percent, after hitting a session low of $1,924.35 an ounce.
The Federal Open Market Committee (FOMC) saw novel Coronavirus as likely to continue to hamper economic growth and pose a potential threat to the financial system, according to minutes of the Fed’s July monetary-policy meeting released.
“Members considered that the continuing public health crisis would have a severe impact on economic activity, employment and inflation in the short term and pose a considerable risk to the economic outlook in the medium term,” the minutes said.
The Fed reiterated that the economic downturn triggered by the outbreak faces a highly uncertain path and that additional fiscal stimulus is needed to support the economy.
The minutes also showed that policymakers did not support a cap on Treasury yields. As a result, the dollar rallied, Treasury yields rose and spot gold fell more than 3 per cent.
“One of the concerns was that the Fed might take yield curve control, which would be a strong catalyst for continued dollar weakness, but they said they were not considering it at the moment,” said Edward Moya, senior market analyst at brokerage OANDA. Limiting yields on U.S. treasuries could make them less attractive, putting pressure on the dollar.
The dollar index.DXY closed up 0.77 percent at 93.04 on Wednesday, after touching 92.15 as low and 93.07 as high as intraday.
“The expectation that the Fed will do more is the catalyst for the sell-off in gold,” said Jeffrey Sica, an analyst. The Fed has shown no sign that it will create the liquidity that gold investors want.
In addition, china-U.S. trade-related news also played a major role in Wednesday’s sharp drop in gold prices.
Trade talks between China and the United States that had been scheduled for the weekend were abruptly postponed, but the reason is not yet clear. It was initially suggested that China wanted to discuss other issues besides trade agreements in the meeting, but the Chinese refused to attend after that request was rebuffed by the US. But it was also reported that Chinese officials were unable to attend the video conference because of scheduling problems.
The latest is that Mr Trump has unilaterally cancelled contacts with China. In any case, the postponement of the talks complicated the situation and at one point rattled risk sentiment in the markets.
On Tuesday, U.S. President Donald Trump said he canceled a weekend trade negotiation with China, calling Beijing’s treatment of Novel Coronavirus “inconceivable.” Speaking in Yuma, Arizona, Mr Trump said: “I cancelled my meeting with China. I don’t want to talk to China right now.” “We’ll see,” Mr Trump said of whether the US would withdraw from the first phase of the agreement.
But Mark Meadows, the White House chief of staff, responded on Wednesday, noting that talks on the implementation of the trade agreement had not been canceled altogether, but postponed, and that the two sides were still monitoring the progress of the agreement. Meadows said U.S. Trade Representative Robert Lighthizer continues to discuss the implementation of the first phase of the trade agreement with China.
Analysts said a combination of China’s recent increase in purchases of U.S. agricultural and energy products had eased risk sentiment, hitting safe-haven gold buying.
Bank of America on Tuesday released the results of its August fund managers survey. According to the survey, the gold market is the second most crowded financial asset after technology stocks.
The report said 31% of all respondents believe gold prices have risen too much, the highest level since 2011. Meanwhile, 31% of respondents said their weighted portfolios of stocks, bonds and gold were overvalued, the highest level since 2008.
The United States has suspended its agreement with Hong Kong to hand over fugitives
Despite Wednesday’s plunge, gold rebounded in early Asian trading on Thursday, hitting as high as $1,946 an ounce, up more than $20 from the day’s lows.
Analysts said geopolitical tensions, including those in the United States and The United States and Iran, had boosted risk aversion in the market, spurring gold to rise again. The rally was also driven by some investors buying on dips after yesterday’s sharp fall in gold prices.
“The macro environment is still very positive for gold,” said Kevin Grady, President of Phoenix Futures and Options LLC in San Francisco. “Nothing has changed,” Grady said. All the reasons for gold’s rise remain valid – the huge liquidity provided by central Banks and the low interest rate environment. “We haven’t seen a significant unwinding of open positions, which is a sign of bullish sentiment.”
Afshin Nabavi, vice President of precious metals trader MKS SA, said gold prices are unlikely to see another major pullback this week, with $1,900 and $1,925 psychologically good support.
On August 19, local time, the US State Department said it had informed the Hong Kong SAR government that it had suspended or terminated three bilateral agreements with Hong Kong. Affected agreements include the Transfer of Fugitives Agreement, transfer of sentenced persons agreement and exemption from international shipping profits tax. It is the latest sign of deteriorating relations between the United States and China in the weeks since China imposed a national security law on Hong Kong.
Morgan Ortagus, a US State Department spokesman, said: “These agreements cover the transfer of fugitives, the transfer of sentenced persons and reciprocal tax exemptions for income from international ship operations.”
The State Department said the move was made in accordance with President Donald Trump’s July 14 executive order. The order said Hong Kong “no longer has sufficient autonomy to obtain differential treatment in its relations with the People’s Republic of China” because of the territory’s security laws.
“These measures highlight our deep concern over Beijing’s decision to implement the National Security Law, which has shattered the freedoms of the people of Hong Kong,” Mr Otago said.
Australia, Canada, New Zealand, Germany, France and Britain have also suspended extradition treaties with Hong Kong in recent weeks.
In response, The Chinese side decided to suspend the AGREEMENT on the handover of Fugitives between Hong Kong and Canada, Hong Kong and Macao, Hong Kong and Britain, and Hong Kong and New Zealand, and also decided to suspend the Agreement on Mutual Criminal Justice in Hong Kong and Canada.
On July 28, foreign ministry spokesman Wang Wenbin has said that recently, Canada, Australia and the UK to China for Hong Kong to maintain the national security law as an excuse to unilaterally suspended over the escaped prisoner agreement signed with the Hong Kong SAR, the gross interference in China’s internal affairs, a serious violation of international law and international relations basic rules, China is firmly opposed.
Analysts say relations between China and the United States have deteriorated to their worst level in decades. Washington this month slapped sanctions on Hong Kong chief Executive Carrie Lam And other current and former Hong Kong and Mainland officials, accusing them of curtailing political freedoms in the financial hub. The sanctions, also related to the Hong Kong version of the security law, are aimed at driving Ms. Lam and other officials out of the U.S. financial system.
The U.S. government also requires goods made in Hong Kong to be labeled “Made in China” for export to the United States after Sept. 25.
Mr Trump is again taking aim at Iran
U.S. President Donald Trump has ordered Secretary of State Mike Pompeo to notify the United Nations Security Council on Monday that he wants to reinstate security Council sanctions against Iran.
Mr Trump said Secretary of State Mike Pompeo would travel to New York for a MEETING of the UN Security Council to start the process of demanding the reimposition of all sanctions against Iran. He accused Iran of serious violations of the nuclear deal signed with six world powers, and stressed that Iran must never have a nuclear weapon.
Secretary of state mike pompeo will visit United Nations headquarters in New York on August 20 and 21 to inform security council members of their intention to resume sanctions against Iran, the state department said in a statement.
Diplomats said Pompeo was expected to press for sanctions at a meeting scheduled for Thursday at United Nations headquarters in New York. The European Union, as well as Chinese and Russian officials who brokered the deal during the Obama administration, have questioned the legitimacy of the U.S. demand because Russia is no longer part of the nuclear deal.
Asked about doubts that other global powers on the Security Council would agree to impose sanctions on Iran’s financial institutions and industries, Pompeo said, “We fully expect every country in the world to live up to its obligations.”
“The implementation mechanism will be the same as our implementation mechanism for all U.N. Security Council resolutions,” Pompeo said at a state Department news briefing.
The Trump administration has warned for months that it would seek to trigger United Nations sanctions if it allowed the arms embargo on Iran to expire in October, as stipulated in the nuclear deal. The US plan to extend the embargo was decisively defeated in a Security Council vote last week, a diplomatic defeat for Washington.
Separately, U.S. Secretary of State Mike Pompeo warned Russia and China not to ignore all u.n. sanctions reimposed on Iran.
Asked whether the US would impose sanctions on Russia and China if they refused to reinstate UN sanctions on Iran, Mr Pompeo told Fox News on Wednesday: “Absolutely.” “We have done this when other countries are found to have violated the sanctions that the United States has put in place. We hold accountable every country that has violated those sanctions, and we will do the same with the broader sanctions that have been put in place by the United Nations,” pompeo said.
Analyst Anil Panchal said gold prices rebounded on bargain-hunting after Asian markets opened on Thursday. Some in the industry see U.S. President Donald Trump’s comments on Iran as an additional catalyst. The US is prepared to hold Russia and China accountable if they try to end punitive measures against Tehran, us Secretary of State Mike Pompeo has said, as US President Donald Trump prepares to reinstate almost all UN sanctions against Iran.
In addition to geopolitical concerns, Novel Coronavirus and U.S.-China tensions are also supporting gold buyers, Panchal said.
UBS said it kept its year-end gold forecast at $2,000 an ounce as the Federal Reserve continued to hold down nominal interest rates and inflation expectations rose. Gold, meanwhile, is on track to rise to $2,300 an ounce in the near term amid heightened geopolitical tensions.