- Gold weakens after the China Gold Association highlights a drop in the consumption of Gold for jewelry.
- The rising price of Gold is posited as the main reason behind the reduction in demand.
- XAU/USD remains within the confines of a mini range, consolidating within an overall bullish trend.
Gold (XAU/USD) falls to trade in the $2,740s on Monday but remains within the confines of the previous week’s mini range. The precious metal loses ground on reports that demand from China, its largest market, is softening.
The precious metal, however, remains underpinned by safe-haven flows due to the ongoing conflict in the Middle East, which intensified over the weekend with Israel’s bombing of Iran, although the effect was offset by the decision only to target military installations and crucially not Oil and nuclear facilities.
Gold gains a further boost from increasing uncertainty over the outcome of the US presidential election and the overall downtrend in interest rates globally, which, given it is non-interest paying, enhances the yellow metal’s attractiveness to investors vis-a-vis other assets.
Gold drops after report shows softening Chinese demand
Gold edges lower on Monday after data released by the China Gold Association (CGA) showed a fall in demand from the world’s largest Gold consumer in the first three quarters of 2024, compared to the same period a year ago.
Total consumption was 742 tons between January and September, which is 11.18% lower than the same period last year.
Consumption of Gold jewelry in China fell by 27.53%, to 400 tons when compared to the same period in 2023, the CGA reported.
Demand for Gold bars and coins, however, increased 27.14%, to 283 tons compared to 2023. Gold used in industrial processes, meanwhile, reached 59 tons, a decrease of 2.78%.
The high price of Gold was given as the main reason for the fall in demand, “In the first three quarters, the price of Gold continued to rise, and the consumption of Gold jewelry was significantly affected,” the report says.
Trading on the Shanghai Gold Exchange, however, increased by 47.49% to 46,500 tons (23,200 tons on one side), due to traders participating in the rally. Interest in ETFs also increased.
“The domestic Gold ETF holdings rose to 91.39 tons, an increase of 29.93 tons from the end of 2023, an increase of 48.69%,” added the report.
Technical Analysis: Gold continues in a sideways band
Gold trades in a mini range between $2,708 and $2,758 after peaking at the latter level and rolling over.
That said, the yellow metal is in a steady uptrend on all time frames (short, medium and long), which, given the technical principle that “the trend is your friend,” the odds favor more upside.
XAU/USD 4-hour Chart
A break above the top of the range at $2,758 would help confirm a continuation up to the next big-figure target level, which lies at $3,000 (round number and psychological level).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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