On Monday, gold prices jumped more than 1%. After a wild weekend of geopolitical headwinds traders rushed to safe haven assets. Safe haven assets like Gold (XAU/USD) are climbing. That unprecedented surge comes amidst a growing concern over some form of stagflation or recession. Central banks from other emerging economies—China, India and Turkey—are in a pronounced gold-accumulating phase. Consequently, gold is picking up steam as a reliable hedge against economic collapses.
And indeed, as clock ticked to open trading week, gold soared with a big moonshot while U.S. dollar made a minor retreat. This shift comes as investors look ahead to the Federal Reserve’s interest rate meeting later this week. They think this decision will be hugely impactful to market forces. In 2022, central banks took the next step and collectively bought a record 1,136 tonnes of gold. This huge net addition, valued at over $70 billion, represents the greatest annual net purchase since records started in 2000, from the World Gold Council.
Geopolitical Factors Driving Demand
Rising geopolitical tensions, such as the ongoing war in Ukraine, have stoked investor interest in gold. In fact, just recently, U.S. President Donald Trump threatened military action to take Greenland. We have heard concerns that this has created a chilling effect and shook the foundation of boost across the globe. The prospect of any geopolitical instability usually gets investors looking for a stable investment during turbulent times.
Moreover, continued political turmoil in Israel has only worsened these worries about regional stability. With uncertainty increasing by the hour, investors have flocked to gold as a safe haven from volatility, driving prices upward. Together, these geopolitical aspects have fostered a very positive environment for investing in gold.
Central Banks Amplifying Gold Reserves
One trend that’s been hard to miss is the aggressive accumulation of gold reserves by emerging market central banks. Countries such as China, India, and Turkey have all significantly increased their gold buying in recent years—a sign of an ongoing pivot toward hedging against economic instability. This is an important trend. In 2022, central banks collectively bought more than 1,000 tonnes of gold – the most ever recorded.
This expanding demand from central banks has significant and historic repercussions for the gold market. These institutions are hoarding gold as a hedge against inflation and currency devaluation. In doing so, they communicate their belief in the long-term worth of this valuable metal. This increased demand reinforces upward price momentum and cements gold’s reputation as the ultimate safe-haven asset amidst rising economic uncertainty.
Market Dynamics and Technical Analysis
As gold prices continue to rise, market professionals remain vigilant on important resistance and support lines. On Monday, following Friday’s bullish breakout, bullion managed to surpass the R1 resistance in early Asian trading at $3,265. Traders are eyeing $3,290 (the May 1 high) and $3,320 (the April 30 high) as immediate resistance points for potential upward movement.
With the momentum continuing, analysts propose that the R2 level at $3,337 might take aim if the bullish trend continues. To get there, even in the short term, may be a tall order. On the bullish side, the major pivot point at $3,244 is key as support. Further, the technical high at $3,245 will provide an even stronger underpinning of that support. If price continues to crash, traders need to watch key support levels. Look for short term support at $3,219 (S1 intraday support) and $3,197 (S2 intraday support).
The anticipation of the Federal Reserve’s interest rate decision adds another layer of complexity to gold’s market performance. Analysts note that there is a 46.6% chance of a rate cut during the June meeting, which could further influence gold prices. A big rate cut would usually boost gold’s attractiveness as it directly lowers yields on competing assets.