Gold is Desperately Trying to Fall

Gold prices surged by 2.7% to reach $2293 per troy ounce this week, marking a new all-time high at $2305, where a formidable resistance level resides, suggesting a challenging breakthrough.

The precious metal has exhibited remarkable performance, with a 12.5% increase since the onset of March. This rapid ascent echoes the trajectory seen during the outbreak of the war in Ukraine in February 2022 when gold prices soared by 15.0% to $2070 within six weeks.

Despite the ongoing conflict in Ukraine, investors seem to have acclimated to geopolitical tensions, including the Israeli-Palestinian conflict, which saw heightened risks following Israel's attack on Iran's consulate building in Syria, momentarily pushing Brent crude prices above $90.00 per barrel.

However, investors appear to be reverting to the traditional belief that gold prices exhibit a negative correlation with U.S. borrowing rates and the strength of the U.S. Dollar. With U.S. 10-year Treasuries yields climbing to 4.42%—the highest level since November 27, 2023—and the greenback showing slight appreciation, investors are expressing skepticism about the current valuation of gold.

Thus, they are withdrawing from gold assets. The SPDR Gold Trust (GLD) has reported net capital outflows of $3.1 billion since the start of 2024 compared to losses of $1.9 billion for the entire 2023. Despite this developments gold prices added 12.0% in 2023 and another 12.0% in 2024. Considering the scale of capital outflows prices should gain around 7.0-8.0% since the start of this year.

The SPDR Gold Trust (GLD) has reported another $362.8 million net capital outflows last week with more than $82.0 million outflows during this week. According to this data, investors are still abandon gold despite geopolitical tensions and speculations about central bank continuously buying gold in their reserves.

Technical indicators suggest a potential short-term decline in gold prices, particularly after encountering resistance in the $2290-2310 range. A correction towards $2200 per ounce is anticipated in the near term.

The fundamental landscape further supports this downside scenario, as mixed PMI data in the United States for March is coupled with positive ADP Nonfarm Payrolls figures, which surpassed forecasts. Additionally, the Federal Reserve Bank of Atlanta's Q1 2024 GDP estimate of 2.8% QoQ exceeds previous projections. A potential beat in the official March Nonfarm Payrolls forecast of 212,000 could trigger a notable downturn in gold prices.