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Gold Soars on Eurozone Weakness, US-China Trade Worries

September 23, 2019 at 19:04 by Andrew Moran

Gold futures are soaring to kick off the trading week, buoyed by economic weakness in the eurozone and concern that US-China trade talks have hit a snag before advancing to high-level discussions. With the Federal Reserve easing monetary policy to limit the global slowdown, investors are diving into the safe-haven asset. Is $1,600 the next stop for the precious metal?

December gold futures surged $17.00, or 1.12%, to $1,532.10 per ounce at 18:56 GMT on Monday on the Comex division of the New York Mercantile Exchange. Last week, gold recorded a 1% weekly gain, lifting its year-to-date advance to just under 20%.

Silver, the sister commodity to gold, is also rallying to start the trading week. November silver futures spiked $0.885, or 4.95%, to $18.735 per ounce. The white metal enjoyed a 2% weekly jump last week and it is up more than 20% so far this year.

The eurozone IHS Markit manufacturing purchasing managers’ index (PMI) for September slumped to an 83-month low of 45.6, down from 47 in August. This is lower than the market forecast of 47.3. The flash eurozone services PMI declined to an eight-month low of 52, down from 53.5 in August.

The German manufacturing PMI tumbled from 43.5 in August to 41.4 in September.

Anything below 50 indicates a contraction.

The disappointing economic data comes a week after the European Central Bank (ECB) cut interest rates deeper into subzero territory and announced that it would restart quantitative easing (QE). ECB President Mario Draghi has requested eurozone countries to start employing fiscal measures to ensure their respective economies continue to grow, which could be difficult because most of these states are already running budget deficits. Germany is one of the few to run a budget surplus.

Shortly after the US-China renewed trade discussions, the low-level negotiations might have possibly experienced a setback. Chinese officials canceled planned farm visits in Montana and Nebraska for undisclosed reasons. However, it may not be as bad as it looks because both sides confirmed that high-level deliberations would continue next month as planned.

Additional protests in Hong Kong, heightened US-Iran tensions, and volatility in global financial marketers are making traditional safe-haven assets more appealing to investors.

Investors are also keeping an eye out for signals that the Fed will cut rates again this year. According to the CME Group FedWatch tool, most of the market is penciling in a quarter-point rate reduction either in October or December, diminishing the target range to 1.50% to 1.75%.

In other metal markets, October copper futures edged up $0.0075, or 0.29%, to $2.615 per pound. November palladium futures added $0.30, or 0.02%, to $1,625.30 per ounce. November platinum futures soared $16.50, or 1.75%, to $959.10 an ounce.

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