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Gold Rally Just Got What Traders Said It Needed: a New Catalyst

Justina Vasquez and Yvonne Yue Li
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Gold Rally Just Got What Traders Said It Needed: a New Catalyst

(Bloomberg) -- Just when it looked like gold’s rally was starting to founder, the Federal Reserve and an escalation in the U.S.-China trade fracas have given the metal new life.

Gold, which had been headed for a weekly loss Friday morning, closed at a fresh six-year high after the U.S.-China trade fight intensified and Federal Reserve Chairman Jerome Powell said the U.S. economy faces significant risks from slowing global growth.

Bullion’s rebound comes after mixed economic data and doubts expressed by some U.S. central bank officials on further U.S. interest-rate cuts crimped demand for the metal earlier in the week. With the rebound on Friday, prices have now posted seven straight weekly gains, the longest run since 2011.

“With the macro environment deteriorating, i.e. China ratcheted up tariffs today, Brexit, Hong Kong, and the weakness of European bank balance sheets, you can now add a supportive U.S. central bank,” Jim Wyckoff, senior analyst at Kitco Metals, said in an emailed report. “Fed Chairman Powell indicated the Fed would do what was necessary to keep the economy rolling, adding new momentum to gold prices.”

Trade-policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the U.S., Powell said in the text of remarks Friday in Jackson Hole, Wyoming. “We will act as appropriate to sustain the expansion,” he said. That bolstered expectations the central bank will cut U.S. interest rates further.

“That’s a very accommodating statement,” Bob Haberkorn, senior market strategist at RJO Futures in Chicago, said by phone. “They’re going to keep this thing going for as long as they can.”

Traders of fed funds futures jacked up their expectations for the amount of easing they expect from the U.S. central bank this year after Powell’s remarks. The outlook for lower rates may help revive investor demand for gold, which erased a weekly loss. Lower rates are a boon for the metal, which doesn’t pay interest.

Gold futures for December delivery rose 1.9% to settle at $1,537.60 an ounce at 1:32 p.m. on the Comex in New York, after falling as much as 0.4% earlier.

The new salvos on the trade war added to concerns that demand for copper and other industrial metals will be further hurt. December copper futures fell 1.1% to $2.5375 a pound on the Comex, the lowest since May 2017.

A gauge of gold miners climbed to a three-year high on Friday, led by Toronto-based miners Yamana Gold Inc. and Kinross Gold Corp., while an index of global base-metals companies touched an eight-month low.

“The headlines coming out of China and Jackson Hole today, combined with a long weekend in U.K., see people taking some risks off” in the base metals market, Thomas Capalbo, vice president, hedge funds and financial institutions, at Societe Generale SA, said by phone.

To contact the reporters on this story: Justina Vasquez in New York at jvasquez57@bloomberg.net;Yvonne Yue Li in New York at yli1490@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Joe Richter, Steven Frank

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