- Gold price has fallen almost a percentage point lower on the back of improving risk sentiment.
- Positive gains in Asia, strong US earnings and robust European GDP data have all helped boost sentiment.
- Gold price may be unfolding a Measured Move price pattern lower on the charts.
The Gold price (XAU/USD) trades lower by one percent on Tuesday, in the $2,310s at the time of writing, as a positive market mood dents safe-haven demand for the precious metal.
Markets in Asia-Pacific closed on the whole in positive territory, with the Nikkie posting a 1.24% gain, Australia’s ASX200 up 0.35%, and the Hang Seng rising 0.1% at the close.
Although stock markets on mainland China edged lower to close in negative territory, this may have been on the back of traders booking profits ahead of the May 1 holiday after a run of up days. Indeed data out of China was on the whole positive, showing that the Caixin Chinese Manufacturing PMI hit a 14-month high in April, whilst in Europe, French and Spanish GDP growth beat estimates in the first quarter.
Gold price rally driven by Central Banks and OTC buying – World Gold Council
The Gold price rally in Q1 was driven by a combination of strong central bank and OTC buying, according to a recent report by the World Gold Council (WGC).
Total demand during the period was estimated at 1,238.3 tonnes compared to 1,269.7t in the previous quarter.
Over-the-Counter, or OTC buying – which is not conducted via exchanges and so can only be estimated – rose by 136.4t compared to 126.9t in Q4.
Heavy buying by central banks was a contributing factor in the rally in Gold price, with 289.7t of Gold bought by this market compared to 219.6t in the previous quarter.
“Q1 saw no let-up in the pace of central bank gold buying: 290t (net) was added to official holdings,” said the report.
Further details from the WGC report are as follows:
- Gold mine production increased 4.0% YoY to 893t – a record first quarter for the WGC data series.
- Gold recycling climbed 12% YoY to 351t, the highest quarter since Q3 of 2020.
- Eastern investors exhibited different behavior to Western investors, whilst Western gold buying experienced healthy levels of profit-taking. “This contrasted with strong buying into the price surge in Eastern markets,” said the WGC report.
- Global Gold ETF holdings fell by 114t, with Europe and North America experiencing quarterly outflows.
- Demand from the jewelry sector remained healthy, given the price rally. Global jewelry consumption fell just 2.0%.
- Gold demand from the technology sector rose 10.0% YoY as the AI boom boosted buying from the tech sector.
Technical Analysis: Gold price possibly unfolding Measured Move
Gold price (XAU/USD) is potentially unfolding the final down wave of a Measured Move price pattern, most clearly visible on the 4-hour chart, which technical analysts use to analyze the short-term trend.
XAU/USD 4-hour Chart
Measured Move patterns are composed of three waves that trace out a zig-zag pattern. The waves are often labeled A, B, and C. The end of the final C wave can be estimated based on the length of wave A. It is usually either equal in length to A or a Fibonacci 0.681 ratio of A.
A break below $2,290, however, would confirm the pattern is a Measured Move and lead to more downside as wave C unfolds, with targets at $2,267 (the 0.681 target) and $2,245 (A=C).
The Moving Average Convergence Divergence (MACD) momentum indicator has started printing bearish red histogram bars and has crossed below its signal line lending the chart a negative tone.
Until the pattern is confirmed, however, there is still a chance Gold price could rally. A break above the cluster of Moving Averages and the peak of wave B at $2,350 would potentially usher in a new more bullish environment. This could then see a retest of the $2,400 highs.
Additionally, the trend for Gold price is up both in the medium and long-term, overall supporting the outlook for bulls.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India, and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
**Insights into Gold Price Movement**
– The positive market sentiment in Asia and strong economic data from Europe have contributed to the decline in gold prices.
– Central bank and OTC buying were significant drivers of the gold price rally in Q1, indicating continued interest in the precious metal as a safe-haven asset.
– Gold mine production and recycling have seen notable increases, reflecting sustained demand for gold.
– Different buying behaviors between Eastern and Western investors demonstrate varying sentiments towards gold, with potential implications for future price movements.
– The inverse correlation between gold and the US Dollar and US Treasuries highlights the role of external factors in affecting gold prices.
– Technical analysis suggests a possible Measured Move pattern in the gold price, signaling potential downside targets if certain price levels are breached.
By combining fundamental factors like central bank buying and economic data with technical analysis insights, investors can gain a more holistic view of the forces influencing gold prices and make informed trading decisions.
