Gold prices were mostly steady overnight following the steep selloff on Thursday. Chinese state media has gotten more bellicose, talking about how China may have to dig in for a long trade war and suggesting that the nation may have no interest in continuing US trade talks for now.
The tone of commentary from the US and China seems to be fluctuating between conciliatory and provocative this week after reaching a peak of hostility over the weekend. Strong US economic data yesterday introduced a confident, risk-on attitude to the markets that sent gold prices to their lowest level since Monday.
US housing starts, initial jobless claims and the Philly Fed survey all came in higher than expected. On top of that, Walmart had better than expected earnings results, including their highest first quarter same-store sales growth in nine years.
This sent equity prices and the dollar sharply higher and pulled safe haven support from gold and silver. Trade concerns were pushed to the sidelines, despite news of a US ban on using Huawei equipment and a subsequent response from China that they will never make concessions on important matters of principle.
Pointing to low inflation expectations that are sapping the Federal Reserve's ability to respond to a future downturn, Minneapolis Fed President Neel Kashkari called for the Fed to allow inflation to rise above 2% to bring the economy back to full strength. Kashkari is a prominent dove, but the prospect of higher inflation would be supportive to gold in the long term.
Good news on the economy has been bearish for gold, but there are still a number of items out that that could lend support, namely the trade dispute and the heightened tensions with Iran.
The People's Bank of China increased its gold reserves to 61.1 million ounces in April, the biggest monthly increase since 2016. This was the fifth straight month their holdings have increased.
July silver took out its May lows on the selloff on Thursday and continued to work lower overnight. Silver has had a tendency to lead on selloffs recently, while gold has led on rallies.
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