Diverse DigestGold prices tumbled last Friday following the release of stronger-than-expected US nonfarm payrolls data, which sent bearish signals to the market. Analysts indicate that this trend will continue this week as the robust jobs report strengthens the US dollar, traditionally inversely related to gold prices.
Spot gold dropped 3.6% to $2,290.59 an ounce, while gold futures for August delivery fell 2.75%, or $65.9, to $2,325 an ounce, marking a weekly loss of 0.9%. The dollar index gained against a basket of major rivals, contributing to the decline in gold prices.
The recent pullback in gold is also attributed to reports that the People’s Bank of China (PBOC) paused its gold purchases in May after 18 months of consistent buying. This pause has added to the bearish sentiment in the gold market.
“Gold price shows more bearish bias, pressing on the $2,300 barrier, reinforcing expectations of a continued bearish trend on an intraday basis,” analysts at economies.com stated. “Our awaited target is located at $2,272.06, while holding below $2,340.10 represents a major condition for the continuation of the expected decline.”
Despite the short-term bearish outlook, analysts maintain that the long-term bullish view on gold remains unchanged. “Gold is still consolidating, and the news will likely prolong that phase,” said Ole Hansen, head of commodities strategy at Saxo Bank. “China, a major driver of the gold rally in the past year, is likely not done buying gold. However, the pause highlights their reluctance to pay record prices.” Hansen noted that the critical area of support remains around $2,275, the May low and the 0.382 Fibonacci retracement of the run-up from February.
Data showed that the PBOC’s gold reserves stood at 72.80 million troy ounces. There was a notable reduction in monthly purchases, with 60,000 ounces in April, down from 160,000 in March and 390,000 in February. April imports also dropped 30% from March.
“This shift in China’s demand poses a risk for gold bulls, suggesting potential declines,” analysts noted. UBS has revised its gold price forecast 2024 to $2,365, with a year-end target of $2,600 and a projection of prices exceeding $2,800 over the next two years, indicating a positive long-term outlook despite potential easing.
Vijay Valecha, Chief Investment Officer at Century Financial, added, “Central banks’ recent rate cuts, like those by the Bank of Canada and the ECB, are also limiting gold’s losses. Gold needs to break above $2,375-80 to target $2,400 and $2,420. Meanwhile, it needs to hold above the 50-day moving average at $2,340 to avoid further declines, with support around the $2,315-25 zone and $2,300 levels.”
Mohamed Hashad, Chief Market Strategist at Noor Capital, emphasized the relationship between the US dollar and gold: “A strong US dollar, buoyed by the strong US jobs report, can put downward pressure on gold prices. This is because gold is often seen as an alternative investment to the US dollar, and when the dollar strengthens, investors might be less inclined to buy gold.”
While short-term pressures push gold prices down, the long-term outlook remains positive, supported by central bank policies and ongoing market dynamics.
Story Credits: Khaleej Times
Diverse Digest
