Worse-than-expected Chinese GDP numbers are weighing on sentiment

Gold was buoyed by the perceived dovish talk from Fed and ECM members yesterday, pushing beyond the $1,670 level. The rest of the complex, in particular silver, was taken along for the ride. Improved sentiment (especially concerning Europe) and a weakening dollar also helped broaden the appeal of precious metals. However, the initial rally soon ran out of steam, with gold remaining in the $1,670-$1,680 range overnight.

This morning, the worse-than-expected Chinese GDP numbers are weighing on sentiment, although the effect on gold and silver has been rather muted. This lack of direction is understandable, since a weaker Chinese economy could see jewellery demand fall, but it may also prompt a greater monetary policy response from the PBoC which would be to the benefit of precious metals. We feel the latter outcome is not likely (although easing will continue at a moderate pace), and even if the PBoC were to step up monetary accommodation, it would take 12-18 months before the effect would be felt in the economy.