GOLD:Despite Drop,XAU Supported by Strong Central Bank Purchases
Updated
Gold experienced a decline on Tuesday as investors shifted their focus towards riskier assets, reducing the demand for the traditionally safe-haven metal.
Adding to the market dynamics, a survey published by the World Gold Council on Tuesday revealed that central banks now account for about a quarter of total gold purchases. The survey suggests that demand from the central banking sector is likely to remain robust throughout 2024, underscoring the strategic importance of gold reserves.
From a technical analysis perspective, the current market conditions present an opportunity to consider a long position on gold. The metal is trading in a discount area, indicating potential value for bullish investors. This perspective is reinforced by the presence of a strong support level, which coincides with the 78.6% Fibonacci retracement level from a minor swing. This Fibonacci level often serves as a reliable indicator of support, suggesting that the price could find stability and possibly rebound from this point.
Moreover, the price of gold remains above both the 100-day and 200-day moving averages on the daily timeframe. These moving averages are critical indicators of long-term trends, and their current positioning supports a bullish outlook.
Market expectations currently suggest that there is a roughly 55% probability that the US Federal Reserve (Fed) will implement a 0.25% cut to the Fed Funds Rate by September. This expectation persists despite the Fed’s recent decision in its June meeting to raise its estimate of the future path of interest rates, a move generally considered unfavorable for non-yielding assets like gold. However, the potential rate cut could provide some support for gold prices, as lower interest rates tend to decrease the opportunity cost of holding non-yielding assets.
In conclusion, while gold has faced recent declines due to a shift in investor sentiment towards riskier assets, the strong demand from central banks and supportive technical indicators suggest a potential bullish scenario. The upcoming monetary policy decisions by the Fed will be crucial in shaping the future trajectory of gold prices. Investors should watch for price movements around key support levels and monitor Fed policy changes to make informed trading decisions.
Adding to the market dynamics, a survey published by the World Gold Council on Tuesday revealed that central banks now account for about a quarter of total gold purchases. The survey suggests that demand from the central banking sector is likely to remain robust throughout 2024, underscoring the strategic importance of gold reserves.
From a technical analysis perspective, the current market conditions present an opportunity to consider a long position on gold. The metal is trading in a discount area, indicating potential value for bullish investors. This perspective is reinforced by the presence of a strong support level, which coincides with the 78.6% Fibonacci retracement level from a minor swing. This Fibonacci level often serves as a reliable indicator of support, suggesting that the price could find stability and possibly rebound from this point.
Moreover, the price of gold remains above both the 100-day and 200-day moving averages on the daily timeframe. These moving averages are critical indicators of long-term trends, and their current positioning supports a bullish outlook.
Market expectations currently suggest that there is a roughly 55% probability that the US Federal Reserve (Fed) will implement a 0.25% cut to the Fed Funds Rate by September. This expectation persists despite the Fed’s recent decision in its June meeting to raise its estimate of the future path of interest rates, a move generally considered unfavorable for non-yielding assets like gold. However, the potential rate cut could provide some support for gold prices, as lower interest rates tend to decrease the opportunity cost of holding non-yielding assets.
In conclusion, while gold has faced recent declines due to a shift in investor sentiment towards riskier assets, the strong demand from central banks and supportive technical indicators suggest a potential bullish scenario. The upcoming monetary policy decisions by the Fed will be crucial in shaping the future trajectory of gold prices. Investors should watch for price movements around key support levels and monitor Fed policy changes to make informed trading decisions.
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