Gold has posted slight gains in the Monday session. In the North American session, the spot price for one ounce of gold is $1296.65, up 0.21% on the day. On the release front, it’s a quiet start to the week, with no major events on the schedule. US Factory Orders expected to decline 0.4%, after a strong gain of 1.6% in the previous release. On Tuesday, we’ll get a look at ISM Non-Manufacturing PMI and JOLTS Jobs Openings.
Are we heading towards a full-blown global trade war? There are some ominous signs that this could be the case, and what would be bad news for the markets could boost gold, which tends to move higher in times of crisis. On Thursday, the Trump administration made good on its threats and imposed stiff tariffs on the European Union, Mexico and Canada. The U.S had granted all three trading partners a temporary extension, but cited insufficient progress on trade talks as the reason for the tariffs. This has triggered promises of retaliatory tariffs on US products, and matters heated up on the weekend at the G-7 meeting of finance ministers in Canada. U.S Treasury Secretary Steve Mnuchin faced sharp criticism from other finance ministers over the tariffs.
A rate hike in June from the Federal Reserve is virtually a given, with the CME Group forecasting a gain of 94%. At the same time, there is increasing talk that the Fed is moving closer to a neutral monetary policy. Recent statements by FOMC policymakers appear to support such a conclusion, which would mean that the Fed would let the economy ‘ride on its own steam’ without intervening by adjusting interest rates. The minutes of the May meeting noted that policymakers would consider allowing inflation to rise above the Fed’s 2 percent target for a temporary period, which means that the Fed would not rush to raise rates based on the inflation target. After June, the Fed is most likely to raise rates in September. Analysts are divided on whether a fourth rate hike will be needed. If the economy is in danger of overheating, policymakers would have to seriously consider another rate increase in December.