Price of Gold Fundamental Daily Forecast – Direction Controlled by Risk Appetite, Treasury Yields, U.S. Dollar

Gold is trading steady-to-slightly higher early Wednesday amid increasing demand for safe-haven assets on concerns over the slowing global economy and renewed worries over U.S-China trade relations. The market rallied from early session weakness on Tuesday as traders reacted to weak GDP data from China and a lower forecast for global growth from the International Monetary Fund (IMF).

At 0631 GMT, April Comex gold is trading $1290.00, up $0.50 or +0.04%.

Gold futures posted their biggest one day gain since January 9 on Tuesday as weak data out of China weighed on investor sentiment, fueling a short-covering rally. The catalyst behind the selling pressure was the news that the Chinese economy grew by 6.6 percent last year, its slowest growth pace in 28 years.

Shorts were also encouraged to cover their positions because of lower global growth estimates from the International Monetary Fund. The IMF cut its 2019 and 2020 global growth forecasts.

Slower economic growth means that central banks will be less-aggressive tightening policy. This keeps pressure on interest rates, which makes gold a more attractive investment. Lower U.S. rates tend to make the U.S. Dollar a less-desirable asset. This helps drive up foreign demand for dollar-denominated gold.

Gold prices were also helped by new concerns over the lack of progress in U.S.-China trade negotiations. Demand for gold increased on Tuesday as traders reacted to a report that the White House had canceled a trade planning meeting with China in Washington on January 30-31.

According to the Financial Times, the U.S. had canceled a trade meeting with Chinese officials, scheduled for later this month. The report was later confirmed by a source familiar with the situation to CNBC’s Kayla Tausche.

The source claimed the meeting was canceled due to outstanding disagreements between the two sides over the enforcement of intellectual property rules. Should this report prove to be true, it would likely mean that the two economic powerhouses would fail to agree on a permanent solution to the trade dispute before the March 1 deadline. This would mean that the White House would likely reinforce punitive tariffs on roughly half of all Chinese exports to the U.S.

A White House spokesman told CNBC that “the teams remain in touch in preparation for high level talks with Vice Premier Liu He at the end of this month.”

The Treasury Department and the U.S. trade representative’s office did not respond to requests for comment. Furthermore, White House economic advisor Larry Kudlow denied that an official meeting had been canceled.

Forecast

There are no major U.S. economic releases on Wednesday. Minor reports include the Home Price Index and Richmond Manufacturing Index.

The main focus for gold traders will be demand for risky assets and U.S. Treasury yields. Higher demand for risk and rising interest rates will keep a lid on gold prices and could trigger further weakness. Lower demand for risky investments and safe-haven buying of Treasurys will be supportive for gold prices.