Gold Price Sinks Firmly Beneath $1,500 as U.S. Hints at Trade Deal

October 13, 2019

New York (Oct 13)  Gold sunk beneath its bullish $1,500 perch as investors embraced risk and dumped safe havens on Friday. The selling was prompted by speculation the United States and China were on the verge of a trade deal, after more than a year of wrangling and hundreds of billions of dollars in tit-for-tat tariffs.

U.S. gold futures for December delivery settled down $12.20, or 0.8%, at $1,488.70 per ounce.

Spot gold fell by 9.32, or 0.6%, to $1,484.24 by 2:05 PM ET (18:05 GMT).

Risk assets across markets rose on Friday as hopes ran high that talks between President Donald Trump and Chinese Vice Premier Liu He in Washington would culminate in a partial trade deal and delay planned U.S. tariff increases against Beijing. Trump meets Liu in the White House at 2:45 p.m. EDT (1845 GMT) after two days of top-level discussions.

Trump himself tweeted: “Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!”

Confidence that a smoother Brexit might be possible after all resulted in higher risk taking as well. Stocks were higher in Germany, France and the United Kingdom.

Reports earlier on Friday indicated that the European Union and the United Kingdom were entering “more intense” discussions of U.K. Prime Minister Boris Johnson’s latest proposals to avoid a disorderly Brexit, the fear of which has been a major factor in driving European portfolio demand for gold this year. The yield on the 10-year U.K. government bond surged 10 basis points in response to 0.69%, its highest in over three weeks.

With portfolio holdings of gold close to all-time highs, the metal is vulnerable to pull-backs, at least in the short term, analysts say.

“The markets are back in risk mode and out of safe havens, with all eyes are on the China-U.S. tariff talks and a better Brexit,” said George Gero, analyst at RBC Wealth Management in New York. “That said, precious metals prices can turn very quickly and buying on major setbacks has always been helpful to bargain hunters.”

Harry Tchilinguirian, head of commodity research at  BNP Paribas   (PA:BNPP), argued in a blog post for the World Gold Council this week that bulls can still look forward to three more rate cuts from the Federal Reserve, taking the Fed's key federal funds rate down to 1.25% by June 2020. It's 2% now.

Elsewhere, there were signs of how volatility in gold prices this year has caused some unexpected problems in the Far East, where much of the world’s physical gold demand is based.

In an interview with Reuters, Bank of Thailand Governor Veerathai Santiprabhob urged the country’s gold traders to keep the proceeds of their gold sales overseas for longer, because the repatriation of profits was putting too much upward pressure on the local currency.

“There were quite huge gold flows, which added to appreciation pressure on the baht,” Veerathai said.

Gold dealers said exports had spiked because Thais who bought gold in the past were taking advantage of a recent rise in global prices to cash out.

Despite the recent outflows, Thailand has still imported a net $43.6 billion of gold since 2009 – although that includes imports for use in jewelry and religious items in the largely Buddhist country as well as by gold traders.

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