Dousing trade tension takes glitter out of gold
…Big US banks turn bearish as bullion suffers worst week in 3yrs
While waning trade tension is expected to bring relief to global markets and economies, already weighed by gloomy forecast, gold bulls are not excited about a truce as fortune change for safe-haven assets which had benefitted from trade-induced global uncertainties.
Gold dropped 3.7 percent last week to $1,462.5 on the spot market Friday, delivering its worst weekly performance in three years, as the United States and China, both world largest economies, hinted on a temporary deal to roll back tariffs, de-escalating tension.
Silver dropped 7 percent last week and is at its lowest since August. Other precious metals have also taken a hit.
Amid gyrations in equity and negative-yielding bonds, global investors had seen high prospects in bullion as fears of a currency war arising from global uncertainties sent investors packing from risky assets into safe havens like gold, stoking price of the lower-risk assets.
Given current events, US-based Investment Bank, JPMorgan Chase has become pessimistic turning underweight from a previous overweight position while peer, Citigroup is no longer bullish on gold.
Only three months ago, Goldman Sachs and Citigroup had predicted that gold could be reaching $1,600 with the latter estimating the advancement to be within 6 months, at least.
Bank of America Merrill Lynch, on the other hand, said bullion price could near $2,000 within two years, beating the all-time high of $1,921.17 established in 2011.
Also, a Bloomberg survey showed 69 percent of trader and analysts were bullish on gold advancing with none bearish for the first time since March 2019.
The gold rush has become threatened as both “warring economies” near opening up trade, the absence of which had seen the International Monetary Fund (IMF) predict 2019 global growth at slowest pace since the 2008-2009 global financial crisis, and cut global output in 2020 by 0.8 percent.
Both the US economy and the Chinese economy have suffered from the trade dispute although Washington’s economy slowed less-than-expected on the back of better consumer spending in the third quarter this year.
Eurozone was also affected, with Germany having ben on the verge of a recession as its manufacturing suffered. Latest figures now suggest a relief for the European powerhouse as new orders for German factory goods rose 1.3 percent in September, according to official statistics.
Meanwhile, main equity gauges in the US, the Dow Jones Industrial Average and the Standards & Poor 500, rose to record high Thursday following news of a trade truce.
Excitement lightly cooled Friday as markets across the world turned cautious to the potential end of a long-protracted trade war.