The price of gold has halved this week, falling to around $3,300. This drop follows quickly on the heels of reaching an all-time high of $3,500 only days ago. This decline is occurring just as profit-taking pressures are increasing, fueled in part by the change in US political rhetoric. Other emerging economies such as China, India and Turkey are quickly increasing their gold reserves. In 2022, central banks in these countries filled their coffers with an unprecedented 1,136 tonnes of gold, worth approximately $70 billion. This is the largest annual acquisition on record.
Recent volatility in the gold market has alarmed many investors. They want to see more US leadership in providing political stability that can help markets stabilize. All week this week, gold has had a hard time keeping up with Bitcoin. Gold is likely to outperform in the long run, due to its excellent history as a safe-haven asset.
Central Banks and Their Rising Demand
Emerging economies are already heavily investing in gold, a friendly show of force that represents a smart move to shore up their financial future. Central banks from countries like China, India and Turkey have been raising their gold reserves at a breakneck speed.
In 2022 alone, these central banks added a record-setting 1,136 tonnes of gold to their reserves. After all, this acquisition cost them almost $70 billion, showing us how serious they are about gold and contribute to their monetary policies. Central banks have purchased at an all-time high this year. This jump demonstrates their growing conviction that gold is a trusted asset worth investing in.
China, for example, has been doing just that – diversifying its foreign reserves, in China’s case boosting its gold holdings. In a similar vein, both India and Turkey have taken note of gold’s importance as an economic hedge against inflation and recession. This trend is part of a wider global pattern among developing economies seeking stable, less volatile assets to safeguard against market instability.
Price Dynamics and Market Reactions
Gold’s price actions have been dramatic this week especially after hitting its all time high $3,500 earlier this week. The metal saw a further 5% drop since as investors have moved to take profits on recent trades. Yesterday, gold plunged below $3,300 after a strong dollar helped to overcome easing tensions between the U.S. and Iran.
The daily Pivot Point for gold is $3,415. This level is the first major line of resistance. On the downside, the initial support has already given way in early trading at $3,331. Traders are watching the key level from early April at $3,167 as the next possible buying opportunity.
Given the changing tune of market dynamics, analysts predict it is only a matter of time before gold is probing new support levels. The second support level at $3,282 is the low established on April 17. Conversely, the next resistance for gold is expected at $3,464.
“Gold’s tactically very overbought and extended – it’s risen $500 plus in 8 trading days, so naturally there’s likely a mix of a buyers’ pause and some risk reduction,” – Nicky Shiels
Political Influences on Gold Prices
FOMC Chairman Powell’s statements and the subsequent comments from US President Trump have made the current market for gold more complex. President Trump has suggested that he was open to lowering tariffs on China. He further retreated on threats to fire ethnic-Fed-Chair-Communist-in-Chief Jerome Powell, giving gold some profit-taking headwinds.
Investors are now navigating an uncertain landscape. His comments have sparked a lot of speculation about what new policy directions might be taken and how those policies could potentially affect our economic fortunes. As a result, market observers expect more statements from US leaders that could further muddy the outlook for gold prices in the coming days.
To be sure, the rapidly changing political climate illustrates just how quickly outside events can impact market sentiment in a major way. Central banks are buying gold like crazy, a reaction to years of simmering geopolitical conflict. Even with recent price decreases, interest in gold as a safe-haven investment is strong.