Gold was getting ready to test 2400 just a few days ago, but now the whole upside potential is at risk. The key change was the news from PBOC that the central bank halted rising its gold reserves for the first time in 18 months. The halt in gold buying has multiple negative effects for gold. The first one is the obvious: the demand side. In the first quarter of 2024, almost ¼ of the gold demand came from central banks, similar to 2023. The biggest central bank buyer for the last one and a half years was PBOC. If this is not a one-time halt, and looking at diminishing gold reserve increases since last November it appears it is not, gold demand will lose a huge chunk.
(Change in China Gold Reserves vs Gold Price)
The second reason is sentiment. The stopping of gold buying by China is probably seen as a signal that gold prices have reached a point where it is now considered pricey. Bond yields are already high enough to attract investors’ attention. The FOMC is likely to keep rates high for longer, and if yieldless gold has reached its peak, gold bulls might want to take some profits after the huge run from below 2000 to 2450 and took their money to high yield alternatives. Despite gold’s long-term potential still being there, over the next few months, gold might feel the downward pressure.
(XAUUSD Daily Chart)
The key points to look for are the 2380-2390 zone for support and the 2345-2355 zone for resistance. The support at 2380-2390 has held for the last three attempts to move downward, but it is not looking too strong at the moment given the downward momentum. Below this support, there is a huge empty space that can be filled very quickly in case of a break. On the other hand, if the gold price recovers above the short-term resistance of 2320, the 2345-2355 zone will once again gain importance, being the last resistance on the way to over 2400 levels.
The biggest downside risk is the FOMC, and the biggest upside risk is the geopolitical situation in the Middle East and Russia.
