A weak dollar, dovish Fed signals and safe-haven buying led to gold closing in the green for the second week. The yellow metal climbed above $1,350, a level that was last seen in April 2018. Weaker-than-forecast economic releases held the dollar down, favouring the yellow metal's price rise.
Filings for United States unemployment benefits increased, rising to a five-week high and adding to signs of potential cooling in the labour market. A closely-watched measure of US inflation, the core consumer price index, rose 2 percent from a year earlier, against a survey of a 2.1 percent increase.
In May, the US's $207.8-billion budget deficit was up from $146.8 billion in the corresponding month the year prior. Other data showed US import prices in May fell by the most in five months in the latest indication of subdued inflation pressure, adding to expectations that the Fed would cut rates this year.
Safe-haven-asset buying emerged as US President Donald Trump threatened to again raise tariffs on China if President Xi Jinping did not meet him at the forthcoming G-20 summit in Japan. President Trump said he would impose tariffs of 25 percent, or ‘much higher than 25 percent’ on Chinese goods worth $300 billion.
Crude oil experienced another negative week. Prices of crude rebounded as tanker attacks in the Gulf increased prices only slightly; they have already been hammered by the deepening trade war and swelling US stockpiles.
As per the US trade association API and Energy Information Administration (EIA), inventories for yet another week have risen.
The US blamed Iran for the attacks on two oil tankers in the Gulf of Oman on June 13, driving up oil prices and raising concerns about a new US-Iranian confrontation. Tehran bluntly denied the allegation.
In a monthly report, OPEC said that international trade tensions are hurting demand for oil, slashing its earlier estimates of consumption and predicting further challenges ahead. The Organization is due to meet in the coming weeks to set production levels for the second half of the year.
Meanwhile, the Saudi Arabian Energy Minister Khalid A Al-Falih said he was confident that OPEC would extend output cuts into the second half of the year after holding talks with Russia.
Next week will be crucial for commodities. The US Empire State manufacturing index, building permits, housing starts and existing-home sales for May will be released. Hence, the greenback is likely to be choppy.
Next week, Central banks of the US, Japan and the UK will have their quarterly monetary-policy meetings to decide interest rates. The most important would be that of the Federal Reserve.
In the light of the weaker-than-forecast economic growth, the cooling labour market, rising unemployment benefits and the mounting budget deficit, calls for a rate cut has increased.
Dovish hints from the Fed have provided additional fuel to traders. The odds of the Fed’s dovish shock with a 25bp cut in rates next week are close to 33 percent, according to CME’s Fed Watch tool.
Meanwhile, China's commerce ministry said Beijing will not yield to any 'maximum pressure' from Washington, and attempts by the US to force China into accepting a trade deal would fail. Therefore, we expect more inflows into SPDR gold exchange-traded funds (ETFs), which would further support a rise in gold prices.
Great volatility is expected in crude oil ahead of OPEC’s meet in Vienna in the last week of June. Any unpredictable development in US-China trade relations may dampen the sentiment for oil.
The author is Research Analyst - Commodities Fundamental, Anand Rathi Shares & Stock Brokers.Disclaimer: Views and investment tips expressed by investment expert on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.