Gold ticks higher on geopolitical risk and positive outlook for demand

• Gold price rises slightly as geopolitical risks heighten and Chinese trade data rebounds. 
• The World Gold Council publishes its monthly report, highlighting Asian demand and central bank buying. 
• Gold pulls back from resistance and returns to trading within a developing range.  

Gold price (XAU/USD) is trading marginally higher on Thursday, exchanging hands in the $2,310s at the time of writing, after better-than-expected trade data from China, a major market for Gold, and the publication of a report by the World Gold Council (WGC) highlighting continued demand from central banks and Asian buyers. 

A stalemate in ceasefire talks between Israel and Hamas after Israel’s continued incursions into Rafah, and reports of a worsening situation on the frontline for Ukraine add further upside pressure from geopolitical risk, which benefits Gold as a safe-haven.  

Gold price rises on China data, outlook for demand

Gold price ticks up on Thursday after Chinese trade data showed a greater-than-expected rise in Chinese exports of 1.5% year-over-year in April, rebounding from a 7.5% drop a month earlier. According to the data, imports rose 8.4%, beating the 5.4% forecast and the previous 1.9% drop. China is a key player in the global market for Gold so strong economic data from the country impacts its valuation. 

Asian demand was also a factor highlighted by the WGC, a respected barometer of the global Gold market, which published its latest report and the outlook for the future regarding the Gold market in April. 

WGC’s report noted that whilst Indian demand fell and the Gold futures market showed flatlining uptake, Chinese demand and US ETF flows turned positive, “joining strong demand for Asian ETFs.”

The importance of central banks as key buyers was highlighted, as was geopolitical risk.  

“Gold hit new all-time highs in April but pulled back by month-end: Chinese buying and central banks appear to be major drivers of support,” according to the report. 

Regarding the outlook, WGC stated that “Stagflation risks are on the rise: growth looks fragile while inflation remains problematic. Asian investors may continue to draw attention.”

Outlook for interest rates caps upside 

Gold price may continue to struggle to gain traction, however, as investors continue to expect relatively high interest rates in the US going forward, which is likely to reduce the attractiveness of non-yielding Gold. 

Although last week’s US Nonfarm Payrolls data showed a weakening in the US labor market that suggested the Federal Reserve (Fed) might cut interest rates sooner than had been anticipated, commentary from Fed officials since, shows a continued reluctance to lower interest rates. 

On Wednesday, Boston Fed President Susan Collins said it looked like inflation would take “longer than previously thought” to come back down, suggesting that the Fed would need to keep interest rates restrictively high for longer. 

Meanwhile, Minneapolis Fed President Neel Kashkari said interest rates would likely have to remain at current levels for an “extended period” in order to beat inflation back down.  

A market-based gauge of the probabilities of future interest rate decisions by the Fed, the CME FedWatch tool, meanwhile, places the odds of rate cuts in September or earlier at 65% (down from 85% a week ago) and 78% in November. The probabilities in November had previously been almost 100%. 

Technical Analysis: Gold price pulls back from resistance at top of range

Gold price (XAU/USD) has retested and pulled back from the ceiling of a mini-range at around $2,326. It is currently finding support from both the 200 and 50 Simple Moving Average (SMA) on the 4-hour chart, in the $2,310s. 

XAU/USD 4-hour Chart

The Moving Average Convergence Divergence (MACD) indicator is mildly negative, painting red bars on the histogram. Further, the MACD line has crossed below the signal line, giving a sell signal.

Price could potentially fall back down to the base of the range at around $2,280. 

The bullish Gold price trend on both the medium and long-term charts (daily and weekly), overall add a supportive backdrop. 

As such, a decisive break out of the top of the range would signal a likely move up to a conservative target at $2,353 – the top of wave B and the 0.681 Fibonacci extension of the height of the range extrapolated higher. In a bullish case, it could even possibly hit $2,370.

A decisive break would be one characterized by a longer-than-average green candlestick that pierces above the range ceiling, and closes near its high; or three green candlesticks in a row that pierce above the respective level.  

Measured Move, unfinished business

Gold price is potentially still in the middle of unfolding a bearish Measured Move price pattern which began on April 19. 

Measured Moves are zig-zag type patterns composed of three waves labeled A, B and C, with C usually equalling the length of A or a Fibonnaci 0.681 of A. Price has fallen to the conservative estimate for wave C at $2,286, the Fibonacci 0.681 of wave A. 

Wave C could still go lower, however, and reach the 100% extrapolation of A at $2,245. Such a move would be confirmed by a decisive break below the range and the May 3 low at $2,277.