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Markets

Gold slips as China-U.S. 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

05 Sep 2019

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 0.6% to $1,543.78 per ounce as of 0745 GMT, set to snap a three-day gaining streak. Prices touched $1,557 on Wednesday, their highest since April 2013.

U.S. gold futures dropped 0.5% to $1,552.60 per ounce.

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

Gold has jumped about 23% 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%. U.S. 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 $1,524 per ounce, as it failed to break a resistance at $1,546, according to Reuters technical analyst Wang Tao.

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

"U.S. 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 U.S. 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 about 1% to $19.40 per ounce, but was near a three-year high of $19.64 it touched in the previous session.

Platinum dipped 0.3% to $982.69, having touched $997.16 earlier in the session, its highest since Feb. 2018. Meanwhile, palladium was up 0.3% to $1,556.68 per ounce.

Copyright Reuters, 2019