Gold traded at $1796.65 an ounce on Thursday morning, representing a 0.3% gain from the prior day’s close.
 
The precious metal advanced on the back of a renewed new wave of risk aversion, which struck equity markets after brokers reduced their estimates for global economic growth for 2011 and 2012, with Morgan Stanley citing ‘insufficient’ policy response to Europe’s debt crisis. The bank also reduced its estimate for China’s growth for next year to 8.7% from 9%, while Deutsche Bank lowered its forecast for this year to 8.95% from 9.1%, and for 2012 to 8.3% from 8.6%.
 
With sentiment biased to the downside, the likelihood is that we will see additional safe-haven flows lift the precious metal, and I wouldn’t be surprised to see it surpass its recent high of $1814.95 an ounce by Friday.Demand for the precious metal has also held up well, especially in China and despite high prices. This is probably due to the country’s restrictive investment policy, which is limiting choice.
 
China’s gold investment demand surged 44% in the second quarter, with purchases of gold coins and bars rising to 53 metric tons from a year earlier, according to a recent note by the World Gold Council. Although the fundamentals for gold continue to appear attractive, it is worth pointing out that it is trading at ‘overbought’ levels on the 14-day RSI and could see a very sharp pull-back should the US decide to unveil a stimulus package and credible long-term fiscal plan. The market is at this juncture desperately in need of a positive catalyst and when that comes we could very well see a sharp (yet temporary) sell-off in the precious metal, so tread carefully.