- The price of Gold has dropped almost one percentage point due to the improvement in risk sentiment.
- Gains in Asian markets, strong gains in the US and strong GDP data in Europe have helped boost sentiment.
- The price of Gold may be developing a measured downward movement price pattern on the charts.
The price of Gold (XAU/USD) fell one percent on Tuesday, to $2,310 at the time of writing, as positive market sentiment dents safe-haven demand for the precious metal.
Asia-Pacific markets generally closed positively, with the Nikkie up 1.24%, the Australian ASX200 up 0.35% and the Hang Seng (HSI index) up 0.1% at the close.
Although mainland Chinese stock markets fell and closed in negative territory, this may have been due to traders taking profits ahead of the May 1 holiday after a streak of rising days. Indeed, data from China was positive as a whole, with the Chinese Caixin manufacturing PMI hitting its highest level in 14 months in April, while in Europe, French and Spanish GDP growth beat estimates in the first quarter .
Gold price rally driven by central banks and OTC purchases – World Gold Council
According to a recent report from the World Gold Council (WGC), the rise in the price of Gold in the first quarter was due to a combination of strong purchases by central banks and over-the-counter markets.
Total demand during the period was estimated at 1,238.3 tons, compared to 1,269.7 tons in the previous quarter.
Over-the-counter (OTC) purchases, which are not made via platform and can therefore only be estimated, increased by 136.4 tonnes compared to 126.9 tonnes in the fourth quarter.
The strong purchasing by central banks contributed to the rise in the price of Gold, with 289.7 t of Gold purchased by this market, compared to 219.6 t of the previous quarter.
“In the first quarter, the pace of gold purchases by central banks did not decline: 290 net tons were added to official reserves,” the report states.
The WGC report offers more details on this:
- Gold mining production increased 4% annually to 893 t, marking a record first quarter for the WGC data series.
- Gold recycling rose 12% y/y to 351t, the highest quarter since the third quarter of 2020.
- Eastern investors showed different behavior to Western ones, while Western Gold buying saw healthy levels of profit taking. “This contrasted with strong buying in rising prices in eastern markets,” the WGC report said.
- Global gold ETF holdings fell 114t, with Europe and North America experiencing quarterly outflows.
- Demand from the jewelry sector remained healthy, given the rebound in prices. Global jewelry consumption fell only 2.0%.
- Gold demand from the technology sector increased 10.0% annually, as the rise of artificial intelligence boosted purchases in this sector.
Technical Analysis: Gold Price Possibly Developing in a Measured Move
The price of Gold (XAU/USD) is possibly unfolding the last bearish wave of a Measured Movement 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
The measured movement patterns are composed of three waves that trace a zig-zag pattern. The waves are usually labeled A, B, and C. The end of the final wave C can be estimated based on the length of wave A. It is usually equal to the length of A or 0.681 Fibonacci ratio of A.
A break below $2,290, however, would confirm that the pattern is a Measured Move and would lead to further declines as wave C develops, with targets at $2,267 (the $0.681 target) and $2,245 (A =C).
The MACD (Moving Average Convergence Divergence) momentum indicator has started printing bearish red bars on the histogram and has crossed below its signal line, giving the chart a negative tone.
However, until the pattern is confirmed, the price of Gold could rebound. A break above the group of moving averages and the wave B high at $2,350 could usher in a new, more bullish environment. Thus, the price of gold could retest the highs of $2,400.
Furthermore, the Gold price trend is bullish in both the medium and long term, which supports the bullish outlook.
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
