By Barani Krishnan
Investing.com - A week of easing by global central banks to shield their economies from China’s devaluation is giving gold longs hope of further gains in the yellow metal, despite a retreat from six-year highs.
Spot gold, reflective of trades in bullion, dipped under the key $1,500 bullish mark, hitting $1,497.37 per ounce by 2:25 PM ET (18:25 GMT), down $3.82, or 0.3%. On Wednesday, bullion’s hit $1,510.38, its highest price since May 2013.
Gold futures for December delivery, traded on the Comex division of the New York Mercantile Exchange, settled down $1 at $1,508.50. December gold surged to $1,522.35 on Wednesday, a peak since Aug 2013.
For the week though, gold futures were up 3.5% and spot gold 4%, the precious metal’s largest gain in seven weeks.
And despite the market clambering down from the week’s highs, prices managed to stay within the bullish $1,500 territory on optimism that the Fed and other central banks will engage in deeper rate cuts to offset the impact of the trade war.
“In addition to fresh U.S. data, there will be some very important macro pointers from China, Germany and the Eurozone to look forward to as well in the coming week,” said Fawad Razaqzada, analyst at FOREX.com.
“If the data in these regions remain soft, then expect to see fresh falls in safe-haven bond yields, which could have repercussions for the wider financial markets.”
The relative attractiveness of gold as a haven asset increased further Friday as German and U.K. government bond yields again flirted with all-time lows, on a mixture of economic and political concerns.
The British economy contracted in the second quarter, its worst performance since 2012, as the U.K. continues to struggle to reach an amenable agreement with the European Union before its scheduled departure on Oct. 31.
Additionally, Bloomberg reported overnight that the U.S. is holding off on giving permissions to American companies to go back to doing business with Huawei. The report, while unsurprising, highlighted the ongoing trade dispute between the world’s two largest economies.
The dispute's effects were also in evidence as Chinese producer prices shrank in year-on-year terms for the first time in three years, adding pressure for Beijing to pump more economic stimulus.
“The trade spat is driving the market crazy,” Jigar Trivedi, commodities analyst at Anand Rathi Shares & Stock Brokers, said. “We don’t rule out technical corrections, but $1,500 is now the new normal unless trade relations take a turn in a right direction.”
Core producer prices in the U.S. also showed the first drop in factory gate inflation in two years, reinforcing arguments for the Federal Reserve to cut interest rates further.
Although second-quarter growth in Japan topped expectations, analysts said the good news was likely to be temporary as trade tensions and a pending tax hike threatened its export-driven economy.