Gold slips as China-US trade talk hopes whet risk appetite

Gold prices dropped on Thursday as risk-on sentiment got a boost after China and the United States agreed to hold talks to end their protracted trade dispute.

Spot gold fell 0.5 per cent to USD 1,545.00 per ounce as of 0603 GMT, set to snap a three-day gaining streak. Prices touched USD 1,557 on Wednesday, their highest since April 2013.

US gold futures dropped 0.4 per cnet to USD 1,553.80 per ounce.

China’s Commerce Ministry said its trade team will hold talks with US counterparts in mid-September in preparation for high-level negotiations in early October.

Gold has jumped about 23 per cent this year as the bruising trade war between the world’s two largest economies has sparked fears of a global economic slowdown and encouraged monetary easing by major central banks around the world.

The news is “driving everything at the moment”, said OANDA analyst Jeffrey Halley.

“Gold will remain under pressure, because trade tensions have been the elephant in the room. Any sign there is a thawing in that situation is going to see a rotation out of gold and into growth-orientated assets.”

Also encouraging risk sentiment was the withdrawal of an extradition bill that had triggered months of often violent protests in Hong Kong and an easing of Brexit-related uncertainties.

Bullion is seen as a safe-haven during times of political and economic uncertainty.

MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.1 per cent. US Treasury yields extended gains in Asia and the yield curve steepened, signs that investors were willing to take on riskier assets.

Gold may retrace to USD 1,524 per ounce, as it failed to break a resistance at USD 1,546, according to Reuters technical analyst Wang Tao.

Focus now shifts to the US central bank’s meeting later this month, amid expectations of a 25 basis point interest rate cut according to CME’s FedWatch tool.

“US services ISM and PMI numbers, the ADP employment report as well as factory and durable goods orders figures are now in focus... firm results might cool Fed rate cut bets and undermine gold’s appeal,” said Ilya Spivak, senior currency strategist with DailyFx, referring to crucial US economic data expected later in the session, often seen as an indicator of economic health.

Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion.

Among other precious metals, silver eased 1 per cent to USD 19.39 per ounce, but was near a three-year high of USD 19.64 it touched in the previous session.

Platinum dipped 0.4 per cent to USD 981.00, having touched USD 997.16 earlier in the session, marking its highest since February 2018. Meanwhile, palladium was up 0.3 per cent to USD 1,556.76 per ounce.