Gold is trying to recover by finding support from weakening dollar on Wednesday, after yellow metal hit the lowest since the new year on Tuesday due to increasing risk sentiment. As there are mixed messages coming from the world economy, Chinese economy grows above expectations in the first quarter on yearly basis, supported by better than expected industrial production and retail sales in March, according to data released on Wednesday. Despite that, economists say it is early to think the economy starts recovering since growth is still at the lowest level in post-crisis era. On the other hand, according to data released today in Japan, exports keep contracting while increase in imports moderates in March.
While dollar index decreases on Wednesday, gold prices try to recover after yellow metal has been as low as $1,273 on Tuesday, lowest level in 2019 so far, due to increase in global equities.
As of 15:13 GMT+3, spot gold was trading at $1,276.87 an ounce while dollar index was down to 96.90. US 10-year Treasury continued its rise and saw 2.598.
According to data released in China today, Chinese economy grew 6.4% in the first quarter annually, above expectations of 6.3%, which showed economic stimulus program followed by the government started taking effect. Besides, industrial production was also above expectations and increased by 8.5% in March while retail sales in March rose by 8.7%. However, economists say these numbers could not be taken as a proof as it is early to think the economy is recovering since increasing activity is seen as due to the effects of stimulus program applied by Chinese government. Similarly, increase in exports in March trade data is also seen as seasonal effect rather than recovering global demand while increase in industrial production is not expected to be sustainable.
Having said that, while quick recovery is not expected in Chinese economy which slowed down in the first quarter from 1.5% to 1.4% on quarterly basis, government stimulus would likely be limited this time comparing to the earlier one, given the high debt. In its report on Tuesday, OECD mentioned of this issue and said Chinese economic stimulus could be effective in short term, however this could weaken the control of debt and deepen structural disruptions in medium term. As analysts draw attention to that even if growth exceeded expectations in the first quarter annually, it is still the lowest level in the post-crisis era, while they are cautious that possible trade deal between the US and China would lead to a quick recovery.
In the meantime, Japan’s exports contracted by 2.4% while increase in exports moderated to 1.1% in March, according to data released on Wednesday. While decreasing exports to China had a significant effect on the data, worries on foreign demand increased as it is now expected that Japan likely contracted in the first quarter. Moreover, it is expected that exports will likely continue decreasing this year. Capital Economics senior economist Marcel Thieliant said in a research note that they expected Japan’s major trading partners’ economic growth to slow down to 2.4% this year from 3.2% in the fourth quarter, so that weakness in exports would remain for a while longer.