China Is Dragging Gold Prices Up

Gold prices rose by 1.0% this week to $2,664 per troy ounce, showing resilience despite rising U.S. Treasury yields, which typically weigh on the metal. The 10-year Treasury yield climbed to its highest level since April 2024, but gold continues to gain momentum, supported by a combination of fundamental and technical factors.

One key driver is the resumption of gold purchases by the People’s Bank of China (PBOC) after a six-month pause. The PBOC added 0.45% to its reserves, bringing them to 73.29 million troy ounces. Historically, such activity has had a bullish impact on gold prices. Eight months ago, similar purchases were followed by a 20% rally. If the PBOC continues buying gold, especially amid potential geopolitical tensions with the U.S., prices could climb 10-15% higher, reaching $3,000-$3,200 per ounce. However, this upside scenario hinges on prices holding above the diamond pattern support at $2,536 per ounce. A breach of this level would invalidate the bullish outlook.

Institutional investors are also backing gold’s rise. The SPDR Gold Trust (GLD) saw $1.12 billion in net inflows two weeks ago, marking the largest since March 2024. At that time, gold prices surged by 19.5%, underscoring the potential for a similar rally if inflows persist. Furthermore, the Federal Reserve’s ongoing monetary easing provides additional support. Although the pace of rate cuts may slow, Fed Governor Christopher Waller reaffirmed the continuation of the easing cycle, which traditionally boosts gold by lowering the opportunity cost of holding non-yielding assets.

The U.S. macroeconomic landscape presents a mixed picture. Initial jobless claims declined, while PMIs for manufacturing and services exceeded expectations. However, signs of labor market cooling emerged, with ADP Nonfarm Payrolls adding 122,000 jobs, missing the 139,000 consensus, and JOLTS Job Openings reaching a six-month high of 8.1 million. This cooling could delay further Fed rate cuts, potentially capping gold’s upside in the short term.

From a technical perspective, gold faces immediate resistance at $2,670-$2,690 per ounce. A break above this level could propel prices toward the $3,000-$3,200 range. Conversely, a drop below $2,536 would signal a bearish shift. This Friday’s U.S. December Nonfarm Payrolls report is likely to be a critical catalyst, potentially determining whether gold continues its upward trajectory or faces a correction.