Commodity Blog

Gold futures are trading higher to kick off the trading week, driven by expectations that US-China trade tensions will linger into next year and the Federal Reserve will ease monetary policy even more over the next 18 months. The latest developments in Hong Kong seemed to have had a greater impact on global financial markets than most analysts had anticipated, too.

December gold futures advanced $8.60, or 0.57%, to $1,517.70 per ounce at 17:10 GMT on Monday on the Comex division of the New York Mercantile Exchange. Last week, gold enjoyed a 4% weekly gain and is now up more than 18% on the year.

Silver, the sister commodity to gold, is also enjoying a commendable start to the fresh trading week. September silver futures rose $0.135, or 0.8%, to $17.065 an ounce. The white metal finished last week up 4.6%, bringing its year-to-date gains to just under 10%.

The trade war is primarily driving gold’s meteoric surge as of late. The consensus on The Street is that Beijing and Washington will not strike a new trade agreement before the 2020 presidential election. President Donald Trump confirmed that he is not prepared to make a deal and suggested that next month’s negotiations may be called off.

Financial experts warn that concerns of the trade dispute leading to a recession were intensifying. Bank of America, for instance, raised the odds of a recession within the next 12 months to one in three.

Dovish central banks and subzero debt yields worldwide are contributing to the metals market’s ascent. Soon after the US central bank cut interest rates for the first time in more than a decade earlier this month, Wall Street economists are forecasting additional declines to benchmark rates over the next 12 to 18 months. Morgan Stanley has gone one step further and predicted a return to 0% rates.

Ellen Zentner, a Morgan Stanley economist, said in a research note:

Taking a walk through Chair [Jerome] Powell’s checklist of factors the FOMC will be looking at when deliberating policy adjustments going forward, it seems to us there is already a clear need to cut rates further.

[A bigger move] cannot be ruled out, especially if policymakers see convincing enough evidence in the data that their baseline outlook for the economy has been disrupted, and a pronounced downturn has become more likely.

According to the CME Group FedWatch tool, there is an 80% chance of another quarter-point rate cut at the September Federal Open Market Committee (FOMC) policy meeting.

Right now, the Fed funds rate is in the target range of 2.00% to 2.25%.

To maintain gold’s performance for the remainder of the year, there will likely need to be additional escalation on the trade front, as well as other negative shocks in geopolitics or economics. If not, then the yellow metal could trade sideways at multi-year highs.

On the data front, the July monthly budget recorded an $8 billion deficit, a lot lower than the $120 billion gap forecast. Investors will now look to inflation figures on Tuesday.

In other metal markets, September copper futures dipped $0.0075, or 0.29%, to $2.58 per pound. October platinum futures were flat at $863.50 per ounce. September palladium futures tacked on $10.10, or 0.71%, to $1,429.40 an ounce.

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