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Gold Futures Trade Sharply Lower but Holds $1500

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Gold futures basis the most active December contract have sold off sharply in trading today. As of 4:17 PM EDT gold futures are currently fixed at $1506 per ounce which is a net decline of $17.60 on the day. Dollar strength contributed to today’s decline with only a nominal percentage of the decline being attributable to gains in the dollar index. The intraday low in trading today came in at $1503.30.

Statements made this weekend by President Trump as well as members of his administration suggested that headway and progress has been made in regards to the current trade war between the United States and China. Beginning overseas global equities traded higher and recovered from last week’s price declines. This was followed by U.S. equities opening strongly higher.

At the same time there is continued global central bank monetary easing as exhibited by cuts in interest rates in many countries. Although we have seen central banks both in Europe and in parts of Asia already implement monetary stimulus, China might in fact reform its interest rate mechanism.

According to Reuters, the People’s Bank of China (PBOC) Senate will improve the mechanism used to establish the loan prime rate from this month, in a move to further lower real interest rates for companies as part of broader market reforms “China’s central bank unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by a trade war with the United States.”

Reuters reported that data last week indicated that “China’s economy stumbled more sharply than expected at the start of the third quarter, as the intensifying trade war with the United States took a heavier toll on businesses and consumers. Second-quarter economic growth slowed to a near 30-year low.”

According to MarketWatch, “Asian shares climbed Monday, as investors embraced a move by China that could help lower borrowing rates for companies, and signals that trade talks between Washington and Beijing could be improving … On Saturday, the People’s Bank of China unveiled a key interest rate reform aimed at lowering real interest rates for companies as the country faces a slowing economy.”

Whether or not recent statements and actions by the United States government and Chinese government action will work to bring an end to the global economic slowdown is questionable. It is still widely believed that there is much ground cover in order to resolve and end the trade war between our two superpowers. As such the global rally in equities today could be short-lived.

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Wishing you as always, good trading,

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