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Gold Poised for Weekly Gain on Fed Easing, Middle East Tensions

September 20, 2019 at 12:22 by Andrew Moran

Gold futures are on track for a modest weekly gain, buoyed by the Federal Reserve cutting interest rates and signaling that it would spring into action in the event of a downturn. The de-escalation in the US-China trade dispute ostensibly placed a cap on the yellow metal’s ascent, which was potentially offset by renewed tensions in the Middle East.

December gold futures rose $1.10, or 0.07%, to $1,507.30 per ounce at 12:00 GMT on Friday on the Comex division of the New York Mercantile Exchange. Gold is poised for a weekly jump of 0.8%, but it is still down nearly 2% on the month. Gold is up more than 17% year-to-date.

Silver, the sister commodity to gold, is trading sideways to close out the trading week. December silver futures were flat at $17.885, but the white metal is getting ready to record a weekly surge of 2.2%. So far on the year, silver prices have advanced 15%.

On Wednesday, the Federal Reserve approved a quarter-point cut to interest rates, bringing the target range down to 1.75% to 2.00%. The so-called dot plot suggested that seven Fed officials anticipate one more rate cut in 2019, attempting to curtail the potential slowdown in various areas of the world’s largest economy.

That said, Fed Chair Jerome Powell assured markets that the US economic outlook is “favorable,” adding that the Federal Open Market Committee (FOMC) agreed to reduce rates “to provide insurance against ongoing risks.” Should the country experience a steep downturn, then Powell said the Fed would act.

If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate. We are going to be highly data-dependent …. We are not on a preset course.

Writing in a note, St. Louis Fed Bank President James Bullard said the Eccles Building should have imposed a half-point cut. His defense for this move is that the economy is already slowing down and that manufacturing “already appears in a recession.”

It is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize. At the same time, a 50 basis point cut at this time would help promote a more rapid return of inflation and inflation expectations to target.

Meanwhile, one of the biggest drivers of the Fed’s latest moves, the US-China trade spat continues to deescalate. After a couple of days of low-level talks between both sides, the White House said it would exempt more than 1,100 Chinese products from the tariffs, including Christmas lights, plastic straws, and dog leashes. This comes a week after Beijing pledged to purchase more US agriculture, including pork and soybeans.

The Middle East continues to spook markets following last week’s devastating attack on Saudi Arabia crude oil facilities. Washington has blamed Iran for the drone attacks, but Tehran denies responsibilities. Despite denials, the administration has slapped stricter sanctions on Iran and the US is reportedly putting together a coalition to deter Iranian threats in the future.

Despite the events of the last week, the US dollar rose 0.18% on Friday to 98.43, from an opening of 98.34. The greenback is poised for a weekly increase of 0.2%.

In other metal markets, October copper futures edged up $0.005, or 0.21%, to $2.615 per pound. October platinum futures dipped $2.00, or 0.21%, to $940.40 an ounce. November palladium futures tacked on $3.00, or 0.19%, to $1,615.60 per ounce.

If you have any questions and comments on the commodities today, use the form below to reply.

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