June 4, 2019 / 5:34 AM / 14 days ago

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

(Reuters) - Gold prices edged up 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.

A saleswoman displays a gold necklace inside a jewellery showroom on the occasion of Akshaya Tritiya, a major gold buying festival, in Kolkata, India, May 7, 2019. REUTERS/Rupak De Chowdhuri/File Photo

Spot gold was up 0.2% at $1,326.85 per ounce, as of 0703 GMT, after touching its highest since Feb. 27 at $1,327.90 in the previous session.

U.S. gold futures were up 0.3% at $1,331.30 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. [MKTS/GLOB]

Lingering global trade uncertainty is weighing upon equity markets and is likely to see participants move into safe-haven assets, MKS PAM Group said in a note.

“This is likely to drive gold higher over the near-term, with initial targets extending toward $1,330 and beyond the February high of $1,346.80, while the short-term key for the metal will be the continued ETF and hedge fund interest.”

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. [GOL/ETF]

Meanwhile, 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.

Adding to the sentiment, 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.

Silver was steady at $14.78 per ounce after touching a more than two-week high of $14.83 on Monday.

Platinum edged 0.2% higher to $821.88 per ounce after hitting a two-week high of $825.78, while palladium fell 0.4% to $1,318.75 per ounce.

Reporting by Brijesh Patel in Bengaluru; Editing by Richard Pullin and Sherry Jacob-Phillips and Rashmi Aich

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