Category: Commodities
Gold prices eased in early Asia on Wednesday with trade data out of China showing a mixed picture after exports unexpectedly soared.On the Comex division of the New York Mercantile Exchange, gold for June delivery fell 0.28% to $1,254.50 a troy ounce.Silver futures for May delivery rose 1.06% to $16.145 a troy ounce, while copper futures jumped 3.85% to $2.171 a pound.In China, March trade data showed a trade balance surplus of $29.86 billion, narrower than the $30.85 billion seen. Exports however jumped 11.5%, handily beating the 2.5% year-on-year gain seen, while imports fell 13.8%, more than the 10.2% decline expected.Overnight, gold closed relatively flat on Tuesday, as the dollar bounced from eight-month lows, offsetting gains from earlier in the session when investors piled into the safe-haven asset after the International Monetary Fund lowered its global economic growth forecasts for the remainder of the year.Since opening the year around $1,065 an ounce, gold has surged more than 18% in 2016 and is on pace for one of its strongest first halves in decades.
On Tuesday morning, the International Monetary Fund (IMF) cut its global growth forecast for 2016 in its latest World Economic Outlook (WEO), citing persistently low oil prices, a continued slowdown in the Chinese economy and weakness in advanced and emerging markets. As a result, the IMF now predicts that the global economy will increase by 3.2% in 2016, down slightly from forecasts of 3.4% three months ago. In advanced economies in particular, the IMF expects modest growth of 2% on the year, amid weak demand, unfavorable demographics and low productivity."Lower growth means less room for error," said Maurice Obstfeld, IMF Economic Counsellor and Director of Research Maurice Obstfeld said in a statement. "Persistent slow growth has scarring effects that themselves reduce potential output and with it, demand and investment."As central banks worldwide continue to rely on negative interest rate policies (NIRPs) in an effort to stave off the threat of deflation, Obstfeld emphasized that major economies cannot solely rely on monetary policy alone to achieve their stated growth targets. Instead, Obstfeld noted that the nations must implement a more potent policy mix, combining revamped structural, fiscal and monetary policies."If national policymakers were to clearly recognize the risks they jointly face and act together to prepare for them, the positive effects on global confidence could be substantial," Obstfeld said.Gold is viewed as a safe-haven for investors in periods of heightened global economic instability.Elsewhere, USD/JPY surged by more than 0.60% to an intraday high of 108.68, likely halting an eight-day losing streak. The dollar remains near a 17-month low against the yen, stemming from fears that widespread easing measures by the Bank of Japan will not be sufficient enough to prevent deflation throughout the Japanese economy. The yen is also viewed as a safe-haven for investors in unsettling economic periods.Meanwhile, Federal Reserve Bank of Dallas president Rob Kaplan reiterated that the Fed should remain data-dependent with the timing of its next interest rate hike, while adding that the U.S. central bank should consider raising rates in June if the economy continues to improve. Last month, the Federal Open Market Committee (FOMC) held its benchmark Federal Funds Rate unchanged at a level between 0.25 and 0.50%."We're trying to get ourselves to a normal level of rates because there's a cost to excessive accommodation," Kaplan told CNBC. "It hurts savers and creates distortions in asset allocation. I think we're going to have to take account of all the data including what currencies are doing and what's going on around the world. We'll try to move patiently but do it in a thoughtful way."Any rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.
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