Gold holds near three-month peak on slowdown fears, Fed rate views

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Gold prices held steady on Tuesday, hovering near a three-month high hit in the previous session, as global slowdown worries driven by trade conflicts amid expectations of a U.S. interest rate cut stoked investors towards the safe-haven bullion.

Spot gold was down 0.1% at $1,323.81 per ounce, as of 0525 GMT, after touching its highest since Feb. 27 at $1,327.90 in the previous session.

U.S. gold futures were steady at $1,328.30 an ounce.

“Weak sentiment around the breakdown in U.S.-China trade relationship has seen investors seek safe-haven assets,” ANZ analyst Daniel Hynes said.

Also, “weakness in equity markets and clearly the indications of a rate cut in the U.S. has seen gold come to fore, which has driven investors back into to the gold market.”

U.S. Secretary of State Mike Pompeo said on Monday the United States is seeking to “level the playing field” with China after decades of unfair trade practices, but his Dutch counterpart said tariffs would hurt international trade.

The prolonged trade war between the world’s biggest economies has rolled over financial markets denting risk sentiment among investors. Global stock markets shed over $2 trillion in value in May.

“We expect gold to trade in a higher range during June as we think the turbulence in U.S. equity markets and the downward push in yields still has room to run,” INTL FCStone analyst Edward Meir said in a note.

“Should the Fed signal a rate cut at some point as well, we could see the momentum gain more traction.”

U.S. manufacturing growth slowed further in May to its weakest pace of activity in more than two-and-a-half years, a data showed on Monday.

A gloomy economic outlook prompted traders to increase bets that the U.S. Federal Reserve will cut interest rates sooner than expected.

U.S. Treasury yields slipped to their lowest levels since September 2017 following remarks from St. Louis Federal Reserve President James Bullard who said a U.S. rate cut may be “warranted soon” because of global trade tensions and weak U.S. inflation.

Lower interest rates would support gold because they reduce the opportunity cost of holding non-yielding bullion.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 2.2% on Monday, its biggest one-day percentage gain since July 2016, as investors spooked by global slowdown fears sought safe havens.

Silver eased 0.2% to $14.74 per ounce after touching a more than two-week high of $14.83 on Monday.

Platinum was steady at $819.79 per ounce after hitting a two-week high of $825.78, while palladium rose 0.2% to $1,325.90 per ounce.