Gold prices recover on Wednesday and try to hold above $1,270 after seeing four-month low at $1,266 on Tuesday due to quickly rising dollar. As dollar index increased due to better than expected new home sales in the US, risk sentiment also increased after above expectations company earnings which both keep pressuring gold prices down. In the meantime, according to data released in Germany, the biggest economy of low performing EU, Ifo business climate index decreased in April, showing that German economy keeps losing momentum. On the other hand in China, Chinese central bank is set to wait to evaluate economic performance before considering further monetary stimulus, following Chinese data showing that the economy grew above expectations in the first quarter.
While dollar index increased to 22-month high at 97.77 on Tuesday due to US data showing new home sales rose by 4.5% in March, gold prices recovered from four-month low on Wednesday and try to hold above $1,270. However, increasing risk sentiment due to better than expected company profits and strong dollar keep weighing on gold prices.
As of 15:07 GMT+3, spot gold was trading at $1,272.69 while dollar index was at 97.67. US 10-year Treasury yield was down to 2.540.
OANDA senior market analyst Jeffrey Halley said on Bloomberg that gold was supported by increasing geopolitical tension but this support was limited by increasing risk sentiment and strong dollar.
While weakness in European economy remains, Ifo business climate index fell down to 99.2 in April from 99.7 in previous month, according to data released in Germany, the biggest economy of the EU. While it is seen that German economy loses its steam further with decreasing business confidence, Ifo President Clemens Fuest said deterioration in manufacturing and trade indexes remained and companies were pessimistic about incoming months. On the other hand, he also said services and construction sectors were still optimistic. German government announced last week that they cut the growth expectations by half to 0.5% in 2019.
In the meantime, Chinese central bank (PBoC) officials said on Tuesday that PBoC would wait for a while to evaluate economic developments before considering further cut in reserve requirements, following better than expected first quarter performance of Chinese economy. Speaking on Reuters, officials said central bank was worried that pumping too much cash into economy could reignite bubbles over time while adding PBoC would like to spare some policy tools to protect the economy in case of economic uncertainty and deteriorating conditions. Officials also said there was no need to cut reserve requirements for now since most of the recovery in the economy was due to fiscal stimulus measures taken by the Chinese government. Although Chinese economy grew by 6.4% in the first quarter thanks to stimulus program, quick recovery from recent weakness is not expected anytime soon.