After gold prices fell sharply on Tuesday, the XAU/USD lost support after trading under the $3,300 threshold. The decline represents an ongoing trend of declines, as the US dollar has picked up strength, swaying investor inclination towards more secure assets. We’re optimistic about the future of trade relations. Consequently, demand for haven assets, such as gold, has subsided leading to large outflows from Gold-backed Exchange Traded Funds (ETFs).
The XAU/USD fell for a second-straight day. Positive sentiment about US-EU talks has buried gold’s longstanding safe-haven appeal. As investors weigh the implications of potential trade improvements, they have shifted their focus, resulting in diminished demand for gold.
Market Dynamics and Price Levels
The XAU/USD market is on the cusp of testing new key price levels that traders need to keep a wary eye on. The XAU/USD daily Pivot Point is located just above at $3,341. This level is important to monitor as we look for signs of sentiment changing. If prices were to increase, the R1 resistance at $3,359 will be an important level to observe. This gives us daily resistance at $3,374 with R2 Resistance should a breakout occur above this level. This decision could pave the way for gold to be back at $3,400 sooner than later.
If the market continues in a negative trend, it will be weakened. The $3,275 S2 support level could provide some cushion in the short term. Traders will want to know to be cautious for some historical technical pivotal level at $3,245. This would be on par with the level hit on April 11. While not definitive, this level would be a major focal point for market players predicting direction on upcoming price swings.
Outflows and Investor Sentiment
As seen in the trend above, Gold-backed ETFs have just seen five straight weeks of outflows. This move underscores the perceived changing investor preferences amid a runaway US dollar. This week, market sentiment is rosy due to optimism about ongoing US-China trade talks. Consequently, demand for safe-haven assets such as XAU/USD have dropped. Instead, this shift indicates that investors are more willing than ever to dive into riskier assets with even a hint of economic recovery.
China’s largest gold miner looks to be preparing for its second US dollar bond sale. This comes on the heels of a $300 million successful bond issuance earlier this month. This decision underscores the significant market demand for gold-related financial instruments, even with recent outflows from ETFs. The bond offering is in synch with the broader market where a thawing risk-on attitude is shaping market direction.
Future Outlook for Gold Prices
Moreover, analysts remain bullish on XAU/USD. They estimate that it might climb as high as $3,440, equal to the all time highs established on May 6 and May 7. This positive outlook is heavily dependent upon significant technical support levels. Beyond that, trader sentiment will likely be ruled by market dynamics in the days ahead. The balance between a rising US dollar and re-establishing US trade relations will be key in shaping gold’s future direction.
Additionally, ongoing news related to US-EU trade negotiations will be sure to keep this topic as a key point of investor attention. When negotiations advance and optimism builds, most market participants will need to recalibrate their strategies. This change will only serve to depress gold prices even more.