Gold returned to the centre stage overnight as trade tensions ramped up quickly following the US’s blacklisting of Chinese surveillance tech companies and the later signalled retaliations in response.

Wind is blowing against the prospect of a potential trade deal in high-level trade talks this week.

Meanwhile, a plunge in core US Producer Price Index (PPI) reading, suggest demand is weakening and points to a soft outlook of US corporate earnings. This is widely viewed as a strong reason to give the Fed room to cut interest rates again this month as it suggests further inflation weakness ahead.

It has gotten even worse on the Brexit front, as the government admitted there was little prospect of a deal before the 31st October deadline. Brussels suggested a further extension to next summer but the UK prime minister has insisted on sticking to the original deadline, with or without a deal. The rising likelihood of a ‘non-deal’ Brexit, which is apparently a risk-adverse scenario, led the decline of sterling by 0.62% and 0.56% against the greenback and euro respectively.

Fed chairman Powell said last night that the central bank will resume expanding its balance sheet by purchasing Treasury securities, in an effort to ‘add to the supply of reserves overtime’. Although Powell denied this is QE4, the mechanism still largely resembles the previous rounds of monetary easing. Powell’s press conference also indicated the possibility of another rate cut down the road, as soon as the October meeting He highlighted ‘the broader geopolitical risks’ and the Fed is likely to provide support for this outlook.

Gold price could get a further boost if the Fed pushes through easing measures and aggressive rate cuts down the road. Technically gold price has undergone a period of consolidation since mid-August, but overall trend remains bullish since the beginning of this year.

Against the backdrop of cyclical global economic slowdown and heightened trade risk, the demand for a safe-haven in the form of gold has risen sharply this year. China has increased their gold reserve by about 96 tonnes over the last ten months as part of policymakers’ attempts to diversify its reserve assets away from the US dollar. Other emerging markets have largely followed the same approach.

As long as this trade war persists and the global economy continues its downward trajectory, the demand for gold will likely remain solid.

Gold – Cash (5 mins)

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