Negative divergence indicates lower prices, NFP marked a recent low

Gold (XAU/USD) News and Analysis

• Global central banks signaled continued willingness to increase gold holdings
• Gold has been in a downtrend since falling from all-time highs; upside appears limited in the near term
• This article uses the analysis Chart Patterns and the key Support and Resistance level. See our detailed information for more details Education Library

World Gold Council survey indicates increase in gold holdings

The World Gold Council’s annual survey, which included responses from 69 central banks, was conducted between February and April and showed that 29% of central banks expect to increase their own gold reserves, the highest percentage since the survey began in 2018, despite relatively high gold prices.

Source: WGC 2024

Perhaps one of the most important findings from the World Gold Council's annual survey is the widespread expectation among central banks that gold holdings are likely to increase across the board over the next 12 months. 81% of respondents believe global central banks will increase their gold holdings next year, indicating that current high prices are unlikely to deter banks for long.

The Fed has indicated that it is likely to cut interest rates once this year, possibly twice as the dot plot has shown a narrow decision between the two anticipated outcomes. However, according to the markets the first interest rate cut is only expected to come in Q4, meaning the current drop in gold prices will see little impact until incoming US data suggests a premature interest rate cut which is likely to send gold prices soaring once again.

Gold is a non-yielding asset which means investors view it more favourably when interest rates are low. Lower interest rates reduce the opportunity cost of holding gold and therefore make it more attractive.

Source: WGC 2024

Gold prices reveal little – short and medium term trends collide

Gold prices have rebounded from the NFP lows at the start of the month, but the broader downtrend remains intact. Prices have moved in a choppy fashion from the all-time high of $2,450 after a negative divergence, suggesting a period of bearishness.

This decline developed into a series of lower lows and lower highs – with Friday 7 June (NFP) marking the recent low. Prices have since attempted a comeback, rising above $2,320, but momentum has been lacking – evidenced by the narrowing pattern. If the blue 50 DMA holds as resistance, gold could follow the medium-term downtrend and head lower.

Gold's drivers have run out in recent times. There has been no notable growth in Eastern Europe or the Middle East and US data has failed to provide a conducive environment for rate cuts. On the downside, gold bears will be eyeing $2,287 and the $2,287 low which could act as tripwires for an extended lower low.

Gold (XAU/USD) Daily Chart

Source: TradingView, Prepared by Richard Snow

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX