That’s because gold has rocketed over $4,200, climbing to a record per gram of $4,218 achieved earlier in the European session. Four key reasons propel this unprecedented boom. Two important factors are driving this trend: strong demand from central banks and increasing trade tensions between the United States and China. Just in 2022, central banks collectively purchased a net 1,136 tonnes of gold, worth about $70 billion at today’s prices, increasing their reserves. Consequently, gold (XAU/USD) continues to be a central pillar for investors looking for safe-haven investments.
Additionally, emerging economies like China, India, and Turkey have been adding to their gold reserves quickly, further boosting demand. The U.S. economic calendar is pretty empty this month. Today, widespread and ambitious geopolitical realities are driving demand for gold, the go-to investment during turbulent and unpredictable times. XAU/USD bulls aren’t relenting, even as the telltale signs that this momentum is getting close to an exhaustion point begin to dot the landscape.
Central Banks Drive Demand
In recent years, central banks have been key players in determining gold market dynamics. In 2022, countries around the world collectively added 1,136 tonnes of gold to their reserves. This latest move is a testament to the increasing trend as countries diversify to protect their economies.
Once again, the central banks of emerging economies are at the spearhead of this movement. After all, China and India—two of the world’s largest consumers of gold—have honestly boosted their purchases. Turkey’s move puts this country among countries who are making gold accumulation a priority underscoring a larger, strategic pivot toward precious metals.
These countries are hungry for gold, but not because they want to hoard wealth. Their appetite is partly influenced by the high and rising dollar, and by swings in global markets themselves. With inflation mounting and geopolitical tensions on the rise, many are looking for gold to continue to be a trusted store of value.
Safe-Haven Status Remains Strong
Gold’s safe-haven asset role has never been more important than in today’s uncertain world. The U.S. – China trade war just took a bad turn. This turmoil is propelling the provenance market volatility and raising the need for Gold.
Not exactly a vote of confidence in the policy, as Federal Reserve Chair Jerome Powell recently warned of catastrophic downside risks to the global economy from the trade war. Consequently, gold prices have rocketed. In response to these uncertainties, investors are flocking to gold as a hedge.
“I believe that China purposefully not buying our soybeans, and causing difficulty for our soybean farmers, is an economically hostile act.” – Donald Trump
IMF Chief Economist Pierre-Olivier Gourinchas cautions that further escalation in the trade war adds even more dangers to global economic stability. Such instability may drive further investors to safety in gold.
Technical Analysis and Market Trends
XAU/USD is trading back above $4,190 per ounce, which represents an intraday gain of more than 1.0%. Nonetheless, technical indicators point to the market hitting a wall in the near future. A bearish divergence highlighted on the 4-hour Relative Strength Index (RSI) suggests overextension and is triggering a rejection in the dire price pump.
As prudent as this warning may be, ADX currently is at approximately 32, indicating a strong uptrend is still very much alive and well. Further support for gold is found at the $4,180-$4,160 areas. On the downside, if we do get a pullback look for buying interest to come in around $4,100.
Bulls are currently extending their dominance in the gold market. Analysts suggest keeping an eye on momentum indicators that may signal a need for caution.
“still on the way up” – Jerome Powell
The dual impact of these safe-haven flows, along with robust purchase of gold from central banks, has been instrumental in maintaining high prices. Investors are continuing to keep a close eye as they feel their way through the fog of international trade relations and conflicting economic predictions.