10.10.201900:49 Forex Analysis & Reviews: Gold relies on trade failure and Fed easing

Despite the correctional decline that followed last month, gold is still trading near multi-year highs.

The focus of market participants is the resumption of trade negotiations between Washington and Beijing.

Although the parties took a step towards each other (US President Donald Trump shifted the deadline for raising duties on Chinese goods from October 1 to October 15, China began to buy more agricultural products from the United States), but it's premature to say that they will conclude an agreement. Both China and the United States have strong leaders who do not intend to retreat.

Obviously, the protectionist policies of the White House did not bring America any preferences. The US trade deficit in August increased by 7% in annual terms. The US president failed to achieve either an improvement in the state of foreign trade, or a 3% increase in national GDP. Therefore, he is likely to bet on an agreement with China. Apparently, the latter understands this and is trying to capitalize on the lower political rating of Donald Trump, who is under the impeachment sword of Damocles. No one knows how the case will end.

October 10-11, the first dialogue between trade representatives of China and the United States will take place in recent months.

Traders fear that if the parties are unable to make progress in the upcoming negotiations, then trade tension will intensify, which will put additional pressure on the entire world economy, the growth rate of which is already slowing down.

For gold, negative news from the trade front is always positive.

The dynamics of the US dollar and, accordingly, precious metals are also influenced by the monetary policy of the Federal Reserve.

With a reduction in the Fed interest rate, the exchange rate of the US currency tends to decrease, and the price of gold rises.

Last Monday, the president of the Federal Reserve Bank of Minneapolis Neil Kashkari said that he was pleased that the US central bank is lowering the rate on federal funds.

"My position is clear: we must support the economy with the help of monetary policy, and not slow it down," he said and added that he did not know how much the Fed should lower the rate.

It is assumed that if the Fed continues to soften monetary policy, gold will continue to rise in price up to $1,900 per ounce.