Gold prices suffered their white-knuckle moment on Wednesday, plummeting more than 1% to $3,391 per ounce. Prior to this slump, gold prices reached all-time highs. At the same time, the US and China are poised to begin high-level bilateral trade talks in Switzerland. The session will address continued trade conflicts between the two economic superpowers. These geopolitical tensions have led to a lower demand for gold as a safe-haven asset.
Even with this recent decline, gold is enjoying unprecedented increases in recent months. Just in 2022, central banks collectively increased their reserves by 1,136 tonnes of gold, about $70 billion worth. Developing economies—including China, India, and Turkey in particular—are quickly adding to their gold reserves. This spike is a reflection of high demand for the precious metal.
Record Highs and Central Bank Purchases
That’s one reason why gold prices skyrocketed to an all-time high earlier this year. This spike was driven largely by geopolitical conflict and global economic uncertainty. Today, central banks around the world are hoarding gold. They’re doing this to hedge against inflation and devaluation of their currency. The cumulative 1,136-tonne increase in central banks’ reserves last year is a case in point that showcases this trend.
Of the two, China has been especially aggressive in increasing their gold reserves. The nation’s central bank has implemented more stimulus steps to prop up its buoyant economy. Analysts think these actions will increase gold prices too. Developing countries like India and Turkey are increasing their gold imports. This latest wave is pouring more gasoline on the inferno of demand that’s been the hallmark of this market.
The call for caution from the head of a major US-listed minerals company is a serious call for caution within the industry. With gold prices hitting historic highs, he encouraged everyone – operators and investors alike – to have discipline in their approach to the business.
Market Reactions to Trade Talks
The anticipated meeting between US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer with a Chinese delegation has shifted market sentiment dramatically. Investors responded favorably to reports on the progress of the ongoing trade negotiations. Subsequently, gold lost demand as a safe haven. The negotiations so far have been considered as at a very early stage, with talks mostly centering on de-escalation rather than major advances.
Though this first stage has the potential to look optimistic, industry experts are warning that it is still a precarious situation. So any bad news or contrary headline would easily turn the tide in these short-term trends against this bullish gold market. The danger of collapse in the trade talks is as real as ever. At the same time, escalating tensions between India and Pakistan add a new layer of danger to an already volatile geopolitical situation.
Pakistan’s recent claims of shooting down five Indian airplanes in retaliation for military strikes have heightened concerns over regional stability. If these tensions increase even more, the price of gold may increase once more. During times of geopolitical unrest, savvy investors flock to safe-haven assets.
Technical Analysis and Future Prospects
With gold prices continuing to experience significant ups and downs, technical analysis shows where major support and resistance levels lie that traders will be watching. The S1 daily support level is now at $3,358, and the S2 daily support level is at $3,285. Should these levels not hold, analysts expect $3,245 to be the next major level to watch. This level would prevent us from continuing to lose ground.
On the positive side, R1 resistance is now at $3,469. This bar feels far away given current market conditions. Conflicting headfakes regarding US-China trade negotiations might be the catalyst for the first significant test of this resistance. Second, a serious escalation of tensions in South Asia could as well.
We encourage investors to stay smart, thoughtful, and patient as they work through this new reality. This ongoing interplay between geopolitical factors and economic policies will keep driving the gold market in the coming weeks.