James Hyerczyk
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Comex Gold

Gold prices are being supported on Thursday by a steep plunge in the U.S. Dollar against a basket of currencies. The drop in the dollar is being driven by the somewhat dovish tone by the U.S. Federal Reserve on Wednesday, weaker-than-expected China economic data and new concerns over the U.S. and China will be able to reach even a partial trade deal in a timely manner.

At 12:11 GMT, December Comex gold is trading $1508.40, down $11.80 or -0.80%.

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A drop in Treasury yields and U.S. equity markets is helping to make the U.S. Dollar a less-attractive asset while driving up demand for dollar-denominated gold.

Fed has No Plans to Raise Rates Either

On Wednesday, the Fed cut its benchmark interest rate 25 basis points as widely expected. It also indicated the possibility of a pause in easing monetary policy. In doing so, policymakers said they “see the current stance of monetary policy as likely to remain appropriate.”

After the release of the interest rate and monetary policy statements, Powell stressed that any future move to increase borrowing costs would have to be preceded by a meaningful and consistent uptick in inflation, the rate at which prices rise in the U.S. economy. That could mean a long wait until the next hike, with the Fed’s preferred inflation gauge showing little signs of breaking out anytime soon.


Chinese Economic Weakness May Lead to More Stimulus

China’s manufacturing sector continued to dwell in the doldrums in October, with sentiment among factory operators remaining in negative territory for the sixth month in row, the South China Morning Post reported on Thursday.

The manufacturing purchasing managers’ index (PMI), released by the National Bureau of Statistics (NBS) on Thursday, stood at 49.3 in October, down from 49.8 in September and below the expectation in a Bloomberg survey of analysts for an unchanged reading. The October figure was the lowest since hitting 49.2 in February.

The weak data may force the Chinese government to implement additional stimulus. This is potentially bullish for gold.

Renewed Concerns over Trade Talks

Reuters reported Tuesday, citing an unnamed U.S. administration official as saying an interim trade agreement between the U.S. and China might not be completed in time for signing in Chile next month. The news outlet also said Wednesday the Trump administration’s demand that Beijing commit to buying more U.S. agricultural products has become a major sticking point in negotiations.

Additionally, Chile called off the Asia-Pacific Economic Cooperation (APEC) summit in Santiago in mid-November. This raised some concerns because now the U.S. and China have to find a place to sign a deal.

Furthermore, Bloomberg News, citing unnamed sources, said that Chinese officials have been casting doubt over the possibility of a long-term trade deal with the U.S., despite the two sides closing in on an initial “phase one” accord. This headline is reviving concerns over future demand growth.

Daily Forecast

Gold should be underpinned today as long as rates and equities remain under pressure. The news about China is not that bad, but it is making investors nervous enough to throw some money into gold. If for some reason the U.S. and China decide to take a break from the negotiations then that could send prices sharply higher.

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