As risk appetite continues to wane, demand for safe-haven assets is rising gradually. Against this backdrop, gold prices extend the recovery from three-month lows, registered earlier this week. The precious metal found a local bottom around $1,445 and reached the $1,470 on Thursday. The technical piсture has marginally improved since then, with fundamentals start to point that further gains may lie ahead.
Risk sentiment turned negative after Trump threatened to impose substantially higher tariffs on Chinese goods if the two countries fail to strike a phase one deal. He also accused Beijing of manipulating its currency. In turn, the Chinese foreign ministry said on Thursday that as trade war began with tariffs, it should end by the US removing them. Also, there are reports that the trade talks are stuck on how to enforce farm goods purchases. All this points to rising uncertainty on this front, and despite there is no an outright and aggressive risk aversion at the moment, investors are getting nervous, which is reflected in picking up safe-haven demand.
In turn, this uncertainty fuels concerns over the health of the global economy. By the way, the latest economic updates out of China confirmed that the long-standing tariffs are hurting the country’s GDP. In particular, China’s industrial production increased substantially lower than expected last month. Output grew 4.7% year-on-year versus the median forecast of 5.4% growth. Property investment growth in the first 10 months of the 2019 slowed on a yearly basis, while retail sales rose 7.2% missing expectations of +7.9%. Moreover, the indicator matched a 16-year low registered in spring. Earlier this month, it was reported that China’s official manufacturing PMI remained in contraction zone for a sixth straight month.
Such a cloudy fundamental background suggests that risk sentiment could be unsustainable down the road, until the world’s two largest economies resolve their trade dispute, at least partially. Thus, gold prices could benefit from this uncertainty in the medium term and extend the recovery from recent lows, with the key upside target coming at the $1,500 handle.