empty
28.08.2024 11:18 AM
Gold Will Shed Weight

Nothing lasts forever. Any trend needs a correction. Gold consumption in China's jewelry industry fell 27% in the first half of 2024, as the biggest problem became the rise in prices to record peaks with almost no pullbacks. Total demand for the precious metal fell by 5.6% to 523.8 tons. Where there is a void, the West is gradually replacing the East, but this does not mean a correction in XAU/USD won't happen.

Federal Reserve Chair Jerome Powell's fiery speech at Jackson Hole about the imminent start of monetary easing by the US central bank allowed gold to set a new record, but then a natural process of selling on facts began. The XAU/USD quotes already account for the Fed's varying pace of rate cuts compared to other central banks, so the ideal environment for the precious metal may deteriorate. We are talking about the dollar's weakness and falling US Treasury bond yields.

This combination allowed asset managers to increase their net long positions in gold to the highest levels in four years. Holdings of the world's largest specialized exchange-traded fund, SPDR Gold Shares, have been rising for eight consecutive weeks, the longest period of capital inflow since mid-2020.

Gold Dynamics and ETF Holdings

This image is no longer relevant

However, excessive speculative longs may become a thorn in gold's side. Their unwinding at the first sign of trouble could lead to quotes declining below the $2500 per ounce mark. Especially since the market increasingly realizes that the Fed's anticipated scale of monetary easing, as implied by derivatives, is clearly overstated. A 100 basis point cut in the federal funds rate in 2024 could still be explained by a recession. However, how can there be a recession when US consumer confidence soars to a six-month high?

Yes, in 2023 and the first half of 2024, the precious metal made gains even amidst a rising dollar and increasing US Treasury yields. Back then, it was supported by active purchases from central banks and strong demand from Asia, led by China. But now, with gold in Shanghai trading at a discount to London, relying on this support no longer makes sense.

Dynamics of American Consumer Confidence

This image is no longer relevant

The US dollar can capitalize on the uncertainty surrounding the US presidential election and geopolitics. The situation in the Middle East remains tense, and the USD index may rise due to increased demand for safe-haven assets.

This image is no longer relevant

At the same time, the long-term outlook for the precious metal remains bullish. By the end of 2025, the federal funds rate could fall to 3.5% amid a slowdown in the US economy. Demand in China is expected to recover gradually, and ETF holdings will increase.

Technically, on the daily chart of gold, the combination of the Three Indians and 1-2-3 patterns increases the risk of a correction. If the bulls fail to push quotes above $2515 per ounce, the risks of a continued decline will increase. It makes sense to hold shorts formed from this level.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

XAU/USD. Analysis and Forecast

Gold maintains a bearish tone today, though it has slightly recovered from the daily low, climbing back above the $3300 level. Investors continue to hope for a potential de-escalation

Irina Yanina 12:23 2025-04-25 UTC+2

The Market Has Nowhere Left to Run

While Donald Trump and Beijing are still trying to figure out whether trade negotiations between the U.S. and China are happening at all, the S&P 500 continues to climb

Marek Petkovich 11:57 2025-04-25 UTC+2

The U.S. Dollar Rises — Here's Why

The U.S. dollar strengthened against a number of global currencies, as did the U.S. stock market, following reports that the Chinese government is considering suspending its 125% tariffs on certain

Jakub Novak 11:31 2025-04-25 UTC+2

Why Could Gold Prices Drop Significantly? (There's a chance gold will continue to decline while the CFD on the NASDAQ 100 futures contract may rise)

The beginning of actual negotiations could lead to a significant drop in gold prices in the near future. In previous articles, I suggested that the previously surging price of gold

Pati Gani 10:14 2025-04-25 UTC+2

GBP/USD Overview – April 25: The Fed Is Starting to Worry for Real

The GBP/USD currency pair traded higher on Thursday, remaining near its 3-year highs. Despite the British pound's strong rally in recent months, corrections are still rare in the forex market

Paolo Greco 07:57 2025-04-25 UTC+2

EUR/USD Overview – April 25: America Files a Lawsuit Against Trump

The EUR/USD currency pair continued to trade calmly on Thursday, although volatility remained relatively high. This week, the US dollar showed some signs of recovery—something that could already be considered

Paolo Greco 07:57 2025-04-25 UTC+2

What to Pay Attention to on April 25? A Breakdown of Fundamental Events for Beginners

A few macroeconomic events are scheduled for Friday, but this doesn't matter, as the market continues to ignore 90% of all publications. Among the more or less significant reports today

Paolo Greco 07:06 2025-04-25 UTC+2

The Yen Is Looking Stronger and Stronger

The nationwide Consumer Price Index published last week showed accelerated core inflation in March—from 2.6% to 2.9%. Inflationary pressure is increasing, supporting the case for further interest rate hikes

Kuvat Raharjo 01:23 2025-04-25 UTC+2

Canada Awaits Election Results. USD/CAD Outlook

Last week, the Bank of Canada kept its interest rate unchanged at 2.75%, as expected. The accompanying statement was neutral in tone, emphasizing ongoing uncertainty. Confidence is hard to maintain

Kuvat Raharjo 00:59 2025-04-25 UTC+2

The Australian Dollar Could Suffer If the U.S.-China Trade War Escalates

U.S. President Donald Trump once again commented on Federal Reserve Chairman Jerome Powell, openly expressing dissatisfaction with the pace of rate cuts. Another public expression of disapproval of the Fed's

Kuvat Raharjo 00:59 2025-04-25 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.