Gold prices are making recovery attempts early on Wednesday following a two-day bearish correction witnessed due to a better risk appetite. Concerns over the Chinese coronavirus seem to be abating gradually following the measures taken by the country’s authorities to stem the negative effect from the decease. Still, the downside pressure in the precious metal looks limited, with prices stay afloat in general, as worries about the negative consequences from the outbreak continue to cap investor optimism.
As such, the bullion retreated from local highs and suffered decent losses on Tuesday but received support marginally below the $1,550 area. Now, the yellow metal is challenging the $1,560 region and could retarget the recent highs around $1,590 should risk appetite start to abate again. Despite the latest bounce in stocks, investor sentiment remains fragile as the virus continues to spread, with total coronavirus cases increasing to 24,324 from 20,438 yesterday. Besides, market optimism is capped by the uncertainty surrounding the potential consequences from the decease for the economy.According to the former Fed governor Janet Yellen, the virus poses risk to global economy and will have a substantial effect on growth in China for at least a quarter or two. This uncertainty will likely limit the potential downside pressure on safe-haven assets, including gold, in the short and medium term.
As for risk factors, gold investors will focus on the upcoming economic data out of the United States these days. Today, service and composite PMIs will affect dollar dynamics and thus may set the tone for gold prices in the short term. as a reminder, the manufacturing index came in above the 50 threshold and fueled dollar demand across the board. Should the numbers surprise to the upside again, the greenback will receive another boost, which in turn may put the bullion under a local pressure.
From the technical point of view, the precious metal needs to get back firmly above the $1,560 handle in order to retarget the mentioned $1,590 resistance, a break above which will open the way towards the $1,600 psychological level. As long as the current cautious optimism prevails in the global markets, the short-term upside impetus in gold prices will be limited. In a wider picture, however, the bullion remains bullish.