After hitting nearly eight-year highs, gold prices started to correct lower amid overbought conditions on Wednesday. Today, the bullion struggles to regain the upside momentum but at least refrains from a deeper retreat, suggesting the upside potential remains intact for the time being.
The safe-haven gold demand picked up yesterday after the IMF revealed fresh economic forecasts that added to the gloomy investor sentiment, on top of coronavirus-related concerns as cases continue to rise in many countries. Now, the International Monetary Fund expects the global economy to contract 4.9% this year versus -3% in April’s estimate.
Besides, there are signs of rising trade tensions between the United States and the European Union after the Trump Administration announced a plan to impose fresh tariffs on goods imported from several European countries.
Against this backdrop, gold prices received a boost and climbed to fresh multi-year highs just below the $1,780 handle. However, the precious metal was rejected from fresh tops and finished the day around $1,760. On Thursday, the bullion has settled marginally above the opening levels, struggling to resume the rally as market sentiment shows some signs of improvement, with most European stock indexes entering the positive territory after a sell-off earlier in the day.
In a wider picture, gold could challenge fresh long-term highs in the medium term as there are still a lot of risk factors globally, including the situation surrounding the ongoing coronavirus pandemic, US relations with its trade partners, especially China and Europe, as well as the outlook for economic recovery from the coronavirus crisis.
From the technical point of view, the bullion could overcome the $1,780 region and target the $1,800 barrier if global risks continue to reemerge in the weeks to come. On the downside, the initial support in case of a deeper bearish correction arrives at $1,747, as this level acted as both resistance and support on many occasions previously.