Gold has posted strong gains in the Thursday session, after trading sideways on Wednesday. In North American trade, the spot price for an ounce of gold is $1313.89, up 0.69% on the day. On the release front, unemployment claims edged up to 211 thousand, easily beating the estimate of 225 thousand. In the services sector, ISM Non-Manufacturing PMI dropped for a third straight month, coming in at 56.8 points, above the estimate of 56.1 points. On Friday, the US releases three employment indicators – wage growth, nonfarm payrolls and the unemployment rate.
As expected, the Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, which said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.
The US has sent a trade delegation to China to discuss recent tensions in relations between the two countries over tit-for-tat tariffs. However, the markets are not expecting any breakthrough, as the delegation will be in China for only a few days. China and the US have engaged in a nasty trade battle, imposing stiff tariffs on a wide range of products. If the two sides do not display some flexibility and goodwill, there are fears that the tariffs could lead to a global recession. A trade war between the world’s largest two economies would be a lose-lose for both China and Beijing, but would be a boon for gold, which is a traditional safe-haven asset in times of trouble.
