Gold snaps losing streaks with Japan threatening to use US Debt in tariff talks

LONDON (May 2) Gold (XAU/USD) trades around $3,263 on Friday,  recovering from two-week lows after three straight days of losses. The losing streak that took place this week was the sum of a whole package of headlines that all had one theme in common: easing on tariffs. Besides the executive orders United States (US) President Donald Trump had signed this week to give relief to the car sector, the main driver for the turnaround in the Gold rally is news that China is considering to start talking with the Trump administration on a potential trade deal, Bloomberg reports on Friday. 

Although the initial market reaction is bearish for Gold with these possible tariff talks getting underway, a quite big tail risk needs to be outlined. The best example is the current ongoing trade talks between Japan and the US, where Japan is the biggest foreign US debt holder by $1,125.9 billion. Japanese Finance Minister Katsunobu Kato said this Friday that the Japanese holdings are a tool for negotiating with the Trump administration, explicitly raising for the first time its leverage as a massive creditor to the United States, Reuters reported. 

Daily digest market movers: China and Japan push back

• China’s Commerce Ministry said in a Friday statement that it had noted senior US officials repeatedly expressing their willingness to talk to Beijing about tariffs, and urged officials in Washington to show “sincerity” toward China. “The US has recently sent messages to China through relevant parties, hoping to start talks with China,” the ministry added. “China is currently evaluating this”, Bloomberg reports.
• National Economic Council Director Kevin Hassett said the Trump administration is making progress in tariff talks and expects news by the end of Friday, Reuters reports. 
• When looking at US debt holders, with Japan coming in first with $1,125.9 billion in holdings, China comes in second with a total of $784.3 billion, while the total US debt amounts to around $26,025.4 billion. 
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May's meeting stands at 6.4% against a 93.6% probability of no change. The June meeting sees a 57.8% chance of a rate cut. Should the Nonfarm Payrolls release later this Friday fall substantially, rate cut bets for June and even May might see a lift in sentiment, where a substantial upside beat of estimates would mean a further delay in any rate cuts from the Federal Reserve (Fed). Nonfarm Payrolls are expected to be released at 12:30 GMT, with the consensus at 130,000 against the previous 228,000.
• Another chapter in the take-over story with Gold Road Resources Ltd. Shares were suspended from trading in Sydney, with the miner citing “media speculation regarding a potential change of control transaction”. The suspension will be lifted when the market opens on May 6, unless the company issues an announcement before then, the Perth-based miner said in an exchange filing Friday, Bloomberg reports.

FXStreet