Gold prices have shifted into a recovery mode since the start of the week, after an aggressive sell-off on Friday amid a broad-based dollar strength and better risk sentiment on the back of unexpectedly upbeat US employment data. As such, the precious metal found a local bottom below $1,459 and continues to challenge the $1,465 zone.
Despite the bullish bias, the impetus looks too modest to bet on further recovery in the short term. However, further dynamics in the yellow metal hinges more on trade developments and signals from major central banks rather than on technical indicators. The US-China trade negotiations remain in market focus, with the December 15 tariff deadline is looming. Should the two countries fail to strike a phase one deal, a massive risk aversion will follow across the board. In this case, gold demand could pick up strongly and send the prices to the $1,480 resistance area and then to the $1,500 handle. To get back to this psychological level, the bullion needs to overcome the 200-DMA that now lies around $1,488.
Also, the upcoming FOMC policy meeting will matter for gold due to its negative correlation with the greenback. As such, a more hawkish tone by the central bank could send the yellow metal lower in a knee jerk reaction. However, the federal Reserve will hardly surprise the markets this time, and the overall reaction is likely to be fairly muted though markets will likely witness a short-lived volatility spike.
In a wider picture, the bullion remains within a bearish medium-term trend which began late-August amid the growing optimism over the US-China trade deal. Judging by the latest developments which point to lack of progress towards a consensus, the trade dispute is still far from being resolved completely. Against this backdrop, the downside risks for gold are looking limited. Should trade developments evolve in a bearish scenario, the yellow metal could attract a decent demand, with the current levels remaining quite attractive for entering the market with longs.
