China economic growth rate declined from 10.6% five years ago to 7.4% in 2014 and will further slow to around 7% this year and according to official report will hit 5% by 2020.
The slower growth will limit Chinese purchasing power and reduce demand for gold and commodity prices and lower commodity prices could discourage some investors from investing in them, including gold, as China’s demand is considered one of the biggest factors in the gold market.
Last week, the People’s Bank of China (PBoC) announced further monetary easing by a cut in the one-year lending rate and the one-year deposit rate by 25 basis points to 4.35% and 1.50%, respectively and it may support that the recent growth slowdown in the Chinese economy is likely to bottom in coming months.
Now investors are looking to the US Federal Reserve (Fed) this week for hints about when it will be ready to lift interest rates for the first time since 2006.
The commodity since the beginning of the year fell more than 2.0% and changed from an accumulation to a recovery phase last week, being squeezed between the 10 and 50-week moving averages. Last week gold fell with a narrow range, creating an inside week and closed in the red near the low of the week. Stochastic is showing an overbought market but even with the commodity well into overbought territory, we should not fight the strong upward correction just yet.
Expecting an upward move to a key level at 1227.12 on a break above previous week high at 1,180.73 (scenario 1) or a break below previous week low at 1,158.85 could push downward gold to a weekly resistance at 1,131.65 (scenario 2).