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

What to Pay Attention to on April 23? A Breakdown of Fundamental Events for Beginners

A considerable number of macroeconomic events are scheduled for Wednesday. All of them are Purchasing Managers' Index (PMI) reports for April in the services and manufacturing sectors. The indices will

Paolo Greco 07:01 2025-04-23 UTC+2

GBP/USD Overview – April 23: The British Pound Can't Stop Smiling

On Tuesday, the GBP/USD currency pair traded much more calmly, yet again showed signs of a "maxed-out flat" pattern. As previously noted, the US dollar has only had two behaviors

Paolo Greco 04:56 2025-04-23 UTC+2

EUR/USD Overview – April 23: Another Calm Before Another Collapse?

The EUR/USD currency pair traded more calmly on Tuesday than on Monday. The US dollar managed to avoid another fall, but it's too early to celebrate. The greenback can collapse

Paolo Greco 04:56 2025-04-23 UTC+2

USD/JPY. On the Threshold of the 139th Figure

The USD/JPY pair has been in a consistent downtrend for the fourth consecutive week. On Tuesday, sellers pushed the pair to the edge of the 139.00 area, hitting the lowest

Irina Manzenko 00:46 2025-04-23 UTC+2

The Dollar Has Been Replaced. Nature Abhors a Vacuum

Fear paralyzes, but action persists. Investors are slowly overcoming their concerns over Donald Trump's attacks on the independence of the Federal Reserve and are starting to lock in profits

Marek Petkovich 00:08 2025-04-23 UTC+2

Bitcoin Took Its Chance

Slow and steady wins the race! Bitcoin quietly broke through to its highest levels since early March amid Donald Trump's attacks on Jerome Powell. When the independence of the Federal

Marek Petkovich 00:08 2025-04-23 UTC+2

XAU/USD. Analysis and Forecast

After setting a new all-time high at $3500 under overbought conditions, gold prices are pulling back. Nevertheless, bullish sentiment remains strong due to persistent concerns over the potential economic fallout

Irina Yanina 19:02 2025-04-22 UTC+2

EUR/GBP. Analysis and Forecast

The EUR/GBP pair is losing ground today after two consecutive days of gains, trading near the psychological level of 0.8600. The pound is receiving support from optimism surrounding ongoing trade

Irina Yanina 11:52 2025-04-22 UTC+2

Why the U.S. Dollar Keeps Falling

The U.S. dollar fell to its lowest level since January 2024 after President Donald Trump's criticism of the Federal Reserve sparked concerns over the central bank's independence. The dollar weakened

Jakub Novak 11:12 2025-04-22 UTC+2

Loss of Confidence in the Fed Will Pressure the Dollar (Bitcoin Likely to Continue Rising, USD/CAD to Decline)

On Monday, the U.S. stock market experienced a sharp decline, pulling down many global exchanges, as the "turbulent" actions of President Trump continue to shift from one hot topic

Pati Gani 09:00 2025-04-22 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.