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Sun 24 Nov 2019 10:03 AM

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Gold recovery hinges on US-China relations

OECD has revised world economic growth projections to below three percent for 2019 and 2020

Gold recovery hinges on US-China relations

While a muted recovery in the price of Gold after an aggressive decline has taken place, it is not a significant recovery.

The price of Gold continues to surprise this month with its value at time of writing consolidating between $1,456 and $1,478 for the trading week concluding November 22.

It had previously fallen all the way from $1,515 to as low as $1,445 earlier in November.

While a muted recovery in the price of Gold after an aggressive decline has taken place, it is not a significant recovery considering the heightened examples of social unrest taking place in markets like Hong Kong and elsewhere. 

This is also taking into account that some of the most recent indications from the ongoing US-China trade negotiations has included a subtle threat that United States President Donald Trump could still impose further tariffs on Chinese products as early as next month.

Such a turn of events would represent another blow to global economic sentiment, during the same week where the OECD has revised world economic growth projections to below three percent for 2019 and 2020 – the weakest pace of global GDP expansion since the pre-2010 financial crisis.

Investors still appear comfortable with their optimism that a US-China trade resolution will finally be reached following a dispute that has prolonged since the second half of 2018 with several escalations since.

However, a serious threat is emerging as additional tariffs on Chinese goods are on the table, or that a US-China trade agreement is not as close to the finish line as had been hoped. This will encourage investors to question whether the incredible rallies seen in stock markets in 2019 are justifiable. 

The Dow Jones Industrial Average, S&P 500 and NASDAQ have advanced by 19 percent, 23 percent and 28 percent respectively year-to-date.

These are some astonishing gains for stock markets in any year, but even more so considering the pessimistic concerns that surround the world economy.

Should US-China relations take another turn for the worst, market uncertainty can become tempting for investors to take profit on stock markets. 

Such potential shocks in sentiment would encourage market uncertainty, suggesting that a potential opportunity is gradually emerging on the table for Gold to recover from a disappointing November so far.​

Jameel Ahmad, global head, Currency Strategy & Market Research, FXTM