Underlying risk appetite remained extremely fragile on Monday with further fears over global trade conditions. Equity markets remained under pressure as the S&P 500 index registered the sharpest loss of 2019 with a 3.0% decline. The dollar also retreated which underpinning gold demand.

After the New York Stock Exchange was closed on Monday, the US Treasury officially called China a currency manipulator following strong pressure from the US Administration.

The US move triggered another spasm of fear in global markets.

Naming China as a currency manipulator increased political pressure sharply. Moreover, it will make it even more difficult to secure any US-China trade agreement. China also confirmed that it would stop buying US agricultural products.

Risk appetite continued to decline sharply with a further slide in equities, and spot gold pushed to fresh 6-year highs above $1,470 per ounce as the dollar declined to its 2-week lows.

Four former Fed Presidents reinforced the need for central bank independence, but President Trump maintained his strong criticism of the Federal Reserve and called for further rate cuts.

Fears rose that the US economy would sustain further economic damage, especially given stresses on supply chains. The US plans to impose tariffs on all remaining Chinese exports from September 1st also maintained concerns over further disruptions in US supply chains.

There was a significant impact on US interest rate expectations with Fed-Funds futures indicating a 40% chance that there would be a further interest rate cut during the Federal Reserve policy meeting in September.

The Chinese central bank fixed the yuan stronger than expected on Tuesday. It eased immediate fears over a more aggressive devaluation strategy, and equity markets rallied, while USD/JPY briefly rallied to 107.00 before fading quickly once again. Spot gold retreated to $1,456 per ounce before recovering to $1,464.

Funds are still likely to sell risk rallies given underlying concerns, and the dollar is likely to lose traction due to expectations of further cuts in interest rates to counter economic damage from trade stresses. In this environment, the underlying gold demand will remain strong, so the yellow metal is expected to move to $1,500 per ounce. Short-term support will be just above $1,450.