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Gold trades flat after pulling back on PBoC news

July 9, 2024

NEW YORK (July 9) Gold (XAU/USD) is trading flat in the $2,360s on Tuesday – stabilizing after the heavy sell-off on Monday. Gold’s weakness at the start of the week came after the news that the People’s Bank of China (PBoC), one of the largest consumers of Gold in the world, had not bought any Gold for the second month in a row in June, after 18 consecutive months of reserve-building, according to data from the PBoC. 

Gold declines on impact of Trump on bond markets

Gold has also declined as a result of the US Treasury bond market absorbing political risk from an increased chance that former President Donald Trump will win the US presidential election in November. 

If Trump wins the presidency, he is expected to cut taxes and borrow, leading to a worsening fiscal position for the US. Critics say his fiscal profligacy will lead to higher inflation, which in turn will keep interest rates high. Gold is falling because it is a non-interest-bearing asset that becomes less attractive to investors when interest rates are high.  

The possibility of a Trump presidency is pushing bond prices down and bond yields up, benefiting the US Dollar (USD) because of its high correlation with yields. This, in turn, weighs on the Gold price, which is primarily bought and sold in USD. 

After a recent televised debate in Atlanta, in which President Biden struggled to answer several of the questions, critics raised doubts about his cognitive capacity given his advanced years and possible dementia. The upshot is that Trump has increased his lead in opinion polls. Additionally, if Biden steps down, his number two, Kamala Harris, is seen as unlikely to have Biden’s broad appeal. 

Trump’s presidential challenge has further gained credibility after the US Supreme Court decided he had partial immunity from any responsibility for the uprising that followed his defeat at the 2020 election and led to his supporters storming Capitol Hill. Prior to the ruling, it was thought Trump’s various indictments might disrupt his campaign or prevent him from taking office. 


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