Gloom over US-China trade talks leaves gold stronger

Bengaluru — Gold prices held firm on Wednesday as sagging hopes for progress in US-China trade negotiations sapped risk appetite, with markets watching closely for clues on monetary easing by the US Federal Reserve.

Spot gold was little changed at $1,505.46/oz as of 3.59am GMT, but stood its ground above $1,500 after jumping as much as 1% in the previous session.

US gold futures gained 0.5% to $1,511.00/oz.

“The market is holding back, and looking at what’s going to happen in the US-China trade talks on Thursday. If the trade dispute turns worse, we are going to expect some strong risk-off trade,” said Phillip Futures analyst Benjamin Lu.

“The players who were short, rolled back on their positions. We are also seeing some weakness on the equity side.”

On Tuesday, the US imposed visa restrictions on Chinese officials for the detention or abuse of Muslim minorities, angering Beijing, ahead of their high-level trade talks on Thursday and Friday, threatening to derail already delicate trade negotiations.

Asian stocks dropped the most in a week with MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.5%.

US President Donald Trump has said tariffs on Chinese imports would rise on October 15 if no progress were made in the negotiations.

The US treasury yield curve steepened in Asia after Federal Reserve chair Jerome Powell signalled further interest-rate cuts and the resumption of bond purchases to address a recent spike in money market rates.

“With the latest QE (quantative easing)-lite measures, we expect inflow of funds into gold-backed exchange-traded funds (ETFs) to continue, which is likely to push gold prices higher. We maintain that gold prices may test as high as $1,600/oz in this period of uncertainty,” OCBC Bank said in a research note.

Lower interest rates generally lessen the opportunity cost of holding nonyielding gold and weigh on the dollar.

Fuelling gold’s appeal was also a report that British Prime Minister Boris Johnson is facing a new rebellion in his cabinet, with a group of ministers poised to resign due to concerns that he is leading the country towards a no-deal Brexit.

Signals are mixed for spot gold, as it failed to break support at $1,488/oz, said Reuters market analyst, Wang Tao.

Meanwhile, silver inched 0.2% higher to $17.75/oz while platinum rose 0.3% to $892.29. Palladium fell 0.3% to $1,670.82/oz.