FX.co ★ Gold demand remains strong, further gains in prospect

Gold made a correctional decline on Thursday with spot retreating to lows just below $1,490 per ounce from 6-year highs just above $1,510.

Overall selling pressure was limited notably amid the improvement in risk appetite. In particular, gold was resilient despite a 1.9% gain for the US S&P 500 index and traded around $1,503 in Europe on Friday.

Overall demand for defensive assets has remained strong with the yen also sustaining a very firm tone despite gains in US equities.

Fears over the global trade and a slowdown in global economic growth will continue to underpin precious metals. The sharp decline in US bond yields and expectations of further interest rate cuts by global central banks provide gold prices with support, especially with a declining cost of carry.

German bond yields are still trading close to record lows below 0.55% with gold in the extraordinary position of being one of the highest-yielding safe haven assets provided that it does not have negative rates.

It would be a good idea for traders to revise investment portfolios on Friday amid the prospects of important political developments during the weekend period. With markets closed, there will be the risk of opening gaps when Asia re-opens on Monday.

Investors will be on edge due to negative risk events with prospects of further attacks on China by President Trump and the US Administration. The US president is likely to resume attacks on dollar's strength and the tail risk of a direct dollar intervention when liquidity is low in early Asian trade on Monday.

Chinese rhetoric has also been generally uncompromising with no evidence of significant concessions made by either side.

Italian political tensions also tend to underpin gold demand in the short term.

Overall, there is scope for further gold gains in Friday's New York close amid buoyant demand as an insurance policy in case risk aversion flares up again.