The Daily Market Report: Gold First As Evidence of Global Slowdown Builds


01-Sep (USAGOLD) — Gold firmed on Tuesday, buoyed by renewed global stock volatility and a reversal of the recent rally in oil prices. This was initially triggered after more disappointing Chinese economic data.

China’s manufacturing PMI fell to 49.7 in August from 50.0 in July. The dip below 50.0 is indicative of a contracting manufacturing sector, and leaves the index at its lowest level in three-years. Obviously the continued decline in the all-important manufacturing sector also has negative implications for the broader Chinese economy.

Chinese stocks dropped sharply, but firmed into the close. While the Chinese government announced on Monday that they would no longer be making large-scale stock purchases to underpin the market. Nonetheless, rumors are rife that they were back in today.

Weaker manufacturing in the world’s second-largest economy has understandably weighed heavily on industrial commodities. Oil is off sharply today, retracing most of yesterday’s gains.

Statistics Canada confirmed today that the tenth-largest economy in the world is back in recession. Canadian Q2 GDP came in at -0.5%. Q1 GDP was revised lower to -0.8%.

This comes on the heels of last weeks announcement that Brazil, the eight-largest economy, is now in recession. The IMF warned today that weaker global growth should be expected. “Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July,” said IMF managing director Christine Lagarde.

Lagarde also warned emerging economies to “be vigilant for spillovers” from China’s slowdown. South Korea is already feeling that pain as their exports plunged 14.7%. China accounts for 25% of all Sooth Korean exports.

South Korea has suffered its heaviest fall in exports for six years, bolstering expectations that the central bank will cut rates next week to tackle a rapidly darkening outlook. — Financial Times

As we have suggested in recent commentary, the real story is one of slowing global growth and the deflationary pressures that spring from those growth risks. It remains unlikely in my opinion that the Fed will raise interest rates in this environment.

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