After a shirt-lived rally on Friday, gold prices resumed the decline at the start of a new trading week. The bullion failed to hold above the $1,460 region and was rejected from local highs as risk sentiment has improved substantially early on Monday. Unexpectedly strong economic data out of China served as the main bullish catalyst for high-yielding assets. In November, the official China manufacturing PMI recovered to 50.2, exceeding the key 50.0 mark for the first time since April, while analysts expected the index to come in at 49.5. Though it remains to be seen if the improvement will continue in the months to come, the figures helped to ease market concerns over the outlook for the Chinese economy which suffers from the prolonged trade dispute with the United States.
However, the current investor optimism could wane quickly should any negative signals from the trade front emerge. As the December 15 tariff deadline looms, investors are getting more nervous about a deal, with Hong Kong bill signed by Trump last week seen as an obstacle for striking a preliminary trade deal between the two countries. So, lack of progress on this front could trigger another wave of profit taking in risky assets, which in turn should support the precious metal.
In this scenario, the bullion could get back above the $1,466 figure and retarget the 100-DMA at $1,485 which is standing on the way to the $1,500 handle. This level will likely be broken should the US and China fail to sign a phase one deal, and Washington impose fresh tariffs on Chinese goods.
In the short term, gold futures may remain under the selling pressure but will likely manage to hold above the $1,450 support area. Apart from positive economic updates out of China, the yellow metal feels the effect from a stronger dollar. By the way, the greenback refreshed multi-month highs against the safe-haven Japanese yen on Monday, challenging the 109.70 area on the way to the next psychological hurdle at 110.00. The dynamics in the pair confirms that investor demand for safe assets is subdued at the start of the week but it will hardly be sustainable without positive news from the trade front, so market participants could shift into a more cautious trading regime after digesting Chinese data.