Gold prices are having a quiet trading day ahead of an important upcoming round of economic data. On Friday, the XAU/USD pair was little changed, stuck in the cash range of the last few days. The precious metal faces difficulty holding on to its recent advances. This challenge is exacerbated as the US Dollar continues to spike, particularly as we see the very important Non-Farm Payroll (NFP) report looming.
The challenge for gold to keep the upward trend intact is clear with it currently hovering around the $3,440 level. This price level forms the neckline of a potential Head & Shoulders reversal pattern. If it’s confirmed, it might mean a major bearish correction is coming. The big picture overall remains very bullish for gold. This is particularly the case with central banks doing heavy buying.
Central Banks Boost Gold Reserves
In 2022, central banks around the world added a record 1,136 tonnes of gold—worth an estimated $70 billion—to their coffers. It represents the largest annual net buying of gold on record going back as far as records exist. Central banks from these emerging economies—China, India, Turkey—are accelerating their gold purchases. To say they are taken titanic is an understatement in the precious metals market. This trend points to a growing tactic among these nations to strengthen their economic defenses from the vagaries of the world economy.
Central banks have been on a buying spree as they’ve bought up a record 12,000 tons of gold. This wave has really accelerated gold’s strength and proven gold’s safe-haven appeal. The continued demand from these institutions should help anchor prices even as short-term market forces apply downward pressure. With central banks persisting in accumulating gold, analysts argue that this might only add to gold’s growing status as a privileged asset in global finance.
Technical Analysis Indicates Potential Correction
According to technical analysis, as traders keep a close eye on gold’s price action, there are emerging signs of bearish sentiment. Additionally, a bearish divergence is visible on the 4-hour chart, suggesting bullish momentum could be weakening. Moreover, the development of a Head & Shoulders formation further deepens worries over a potential price correction.
At today’s prices, gold is just over $3,440. This level serves as the neckline for the Head & Shoulders formation and is the bottom of an ascending channel that developed from the mid-May lows. After the failure to breach resistance at the $3,400 level this week, eyes turn to the $3,340 support area as a possible point of interest for traders. Immediate support levels are at $3,285 and $3,345. If gold can break below these levels, the measured price target would be $3,290.
If gold runs above the $3,400 resistance, it would be a shift of the bearish case. Such a development would open the door for a rally to test the May 6 high at $3,440.
Market Outlook and Future Trends
Even with the headwinds that gold is facing right now, the longer-term picture for the yellow metal is bright. Our analysts reiterate the importance of staying active and watchful for market participants when interpreting technical indicators alongside macroeconomic conditions. The upcoming US NFP data will be pivotal in shaping market sentiment and could influence gold’s trajectory in the near term.
Traders can hardly contain their excitement as they await the NFP report. They are looking for hints on the job market and overall economic activity, which would impact strength of the dollar inversely, bolstering gold. Further solid employment report will aid the dollar further, thus placing heavier hands on gold prices.