Emerging economy central banks have been on a record-setting gold-buying spree. Recent data from the World Gold Council reveals that these institutions added 1,136 tonnes of gold, valued at approximately $70 billion, to their reserves in 2022. This figure represents the largest annual purchase since records started, reflecting a momentous change in market trends.
Investor optimism U.S.-China trade talks this weekend will succeed in resolving the growing tariff conflict continues to build. All the while, gold prices are remarkably resilient. On Friday, gold (XAU/USD) was trying to bounce, up close to 1%, with prices trading back over $3,325. A big reason for this spike, according to analysts, is safe-haven inflows with trade war-related worries hanging heavily over ongoing trade talks. The price of gold has already seen a significant rebound from its first-day losses, reflecting a new optimism among traders.
Central Banks Lead the Charge
Emerging economies like China, India, and Turkey have led the charge in increasing gold reserves. This very deliberate move is indicative of the growing recognition of gold’s pivotal role. Safe haven asset investors often flock to gold during times of geopolitical tensions and economic uncertainties.
Last year, central banks around the world made headlines by increasing their purchases to record levels, acquiring a jaw-dropping 1,136 tonnes of gold to their reserves. This huge increase illustrates the rising global appetite for gold. It’s a sign of changing priorities among countries that are desperate to cement their economic security. These acquisitions might have implications above and beyond just building reserves. Indeed, they seem to be impacting global market trends.
“Buying Gold on dips is still in vogue, which is so far limiting the downside moves despite safe-haven demand drying up to a degree on the US-UK trade deal,” – KCM Trade Chief Market Analyst Tim Waterer
This growing demand from central banks is part of a larger movement in which countries around the world are searching for safe havens in their reserve holdings. Though not always the case, strategic accumulation of gold provides a hedge against volatile currencies and shifting markets.
Market Reactions and Price Movements
Gold prices remain volatile, but increasingly track the progress of international trade negotiations. Following a dip after Friday’s open, gold found its footing and retook the $3,300 level. Analysts were surprised to see the price of gold tick up. Much of this increase was due to markets reacting to the new trade deal struck between the United States and the United Kingdom, widely dubbed a ‘nothingburger.’
As per current market sentiment, all eyes and trader ears are glued to the results of the upcoming US-China negotiations. The daily Pivot Point of $3,336 is the first obstacle for gold on the upside. If the market does get follow-through later in the day, first intraday resistance is expected at $3,384.
If gold comes under strong downward pressure, technical analysts have marked S2 support at $3,210. An even stronger floor seems to be at $3,245, which arguably offers more support from further drops in price.
Trade Talks and Economic Implications
It’s hard to get your eyes off the forthcoming trade talks between the United States and China. These negotiations are set to have a major impact on global markets. President Trump has indicated a willingness to consider lowering the 145% tariff imposed on many Chinese goods if negotiations yield positive results.
According to sources with knowledge of the preparations for these negotiations, on the US side, the goal is to start with tariff cuts of at least 60% from the get-go. They think China is about to come through on this commitment. Progress within the two days of scheduled discussions could pave the way for implementing these tariff cuts as early as the following week.
These negotiations may be the most consequential opportunity in a generation to reset American trade relations. Secondly, they have been affecting the precious metals market, especially gold. With unknowns hanging over the future of international trade policy, gold continues to be a stellar asset for investors looking to find safe haven during times of volatility.