If there is some positive outcome from US-China trade talks, it is likely that we may see some improvement in risk sentiment and this will be negative for gold.
Gold price continues to trade in a broad range as market players remain on sidelines ahead of the US-China trade meeting. The US and China began their two-day meeting on October 10 and, while there is uncertainty whether a deal will happen or not, its impact on gold price is equally uncertain.
The US-China trade conflict has been going on for more than a year and previous failed attempts to resolve the issue has kept market confidence low that a deal could take place this week.
Mixed reports ahead of the meeting have added to uncertainty. As per Bloomberg reports, the White House is looking at rolling out a previously agreed currency pact with China as part of an early harvest deal that could also see a tariff increase next week suspended. This comes after South China Morning Post reported that US and China made no progress in deputy-level trade talks held during Monday and Tuesday in Washington and that the Beijing delegation would leave early.
The US-China trade conflict started with the US complaining about the wide trade deficit between the two nations but has widened to include currency manipulation, technology transfers and investments. The ongoing protests in Hong Kong has also added to tensions between US and China.
The wide difference between the US and China over various issues makes it unlikely that a deal could be reached soon. However, both sides are under pressure to resolve the issue as trade tensions have begun to hurt the economy.
The US economic activity is slowing down as it is evident from economic indicators. Minutes of Fed's meeting in September also showed that the central bank cut interest rate due to increasing risks and uncertainty associated with international trade developments and weakness in global economic growth. So, while hopes of a deal is still low, it is possible that some progress could be made.
If there is some positive outcome from US-China trade talks, it is likely that we may see some improvement in risk sentiment and this will be negative for gold. However, easing trade worries may also reduce safe haven appeal for US dollar and this could limit any major fall in gold price.
Once there is more clarity on US-China trade issues, gold may also react to other geopolitical events like Democrats impeachment inquiry against President Trump, UK-EU Brexit discussions and anti-government protests in countries like Hong Kong, Iraq, Ecuador etc.
(The author is Head – Commodity Research at Kotak Securities.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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