Gold Price Forecast: Can XAU/USD Overcome $2,400 Amid Chinese Demand Concerns?

ByEthan Stephen

Jul 8, 2024 ,
Gold retreats as Chinese demand stalls and yields recover. Our analysis dissects XAU/USD's technical landscape amidst shifting fundamentals. Discover if the recent pullback is a healthy correction or the start of a deeper slide as Powell's testimony looms large on the horizon.

Key Insights

  • Gold’s short-term outlook remains constructive with the 14-day RSI above 50, despite recent pullback.
  • Key resistance lies at $2,400, with a break potentially targeting the all-time high of $2,450.
  • Crucial support zone around $2,340 (confluence of 50-day and 21-day SMAs) could determine trend continuation or deeper correction.

Gold Fundamental Outlook

Gold prices have started the week on a softer note, retreating from recent gains as concerns over Chinese demand and a slight recovery in US Treasury yields weigh on the precious metal. This pullback comes after two consecutive weeks of gains for the yellow metal.

The primary catalyst for the downward pressure is the latest data from the People’s Bank of China (PBOC), which revealed that China’s gold reserves remained unchanged at 72.80 million troy ounces at the end of June, marking the second consecutive month without additions. This stagnation in reserves from the world’s top gold consumer has raised concerns about overall demand dynamics.

Adding to the bearish sentiment is a modest recovery in US Treasury bond yields. The benchmark 10-year yield is attempting to reclaim the 4.30% level, up 0.61% on the day. This uptick in yields makes non-yielding assets like gold less attractive by comparison.

Political uncertainty in France following the second round of parliamentary elections is also influencing market sentiment. The possibility of a hung parliament, with President Emmanuel Macron’s centrist bloc narrowly ahead of Marine Le Pen’s RN party, could potentially drive risk aversion and indirectly impact gold prices through currency movements.

In the absence of major economic data releases, gold prices will likely be guided by overall risk sentiment and market expectations regarding the Federal Reserve’s interest rate policy. Currently, there’s a 76% probability priced in for a Fed rate cut in September, slightly higher than the 74% chance seen after Friday’s US Nonfarm Payrolls data.

The NFP report showed a stronger-than-expected increase of 206,000 jobs in June, though significant downward revisions to April and May figures tempered the impact. Average hourly earnings rose 3.9% year-on-year, in line with expectations but marking the lowest increase since Q2 2021.

Investors will be closely watching Fed Chairman Jerome Powell’s testimony before the Senate Banking Committee on Tuesday for further clues on monetary policy direction.

XAUUSD Technical Analysis

Gold's short-term outlook remains constructive with the 14-day RSI above 50, despite recent pullback.

Despite the recent pullback, the short-term technical outlook for gold remains constructive. The 14-day Relative Strength Index (RSI) is holding above the 50 level, indicating underlying bullish momentum.

Last week’s bullish range breakout saw prices surpass the June high of $2,389, but the rally faced rejection just below the psychologically important $2,400 mark. This level now serves as a key near-term resistance.

If buyers regain control, the immediate target would be a retest of the six-week high at $2,393, followed by a push towards $2,400. A sustained break above this level could put the all-time high of $2,450 back in focus.

On the downside, initial support lies at Friday’s low of $2,352. A break below this level could see gold test the crucial demand zone around $2,340, which represents the confluence of the 50-day and 21-day Simple Moving Averages (SMAs).

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