The price of gold is stalling at $2,000 after the risks over regional banks and the debt ceiling appear to be receding.
Gold – Daily Chart
The price of gold traded below $2,000 at $1,989, with the $1,959 level in sight.
With inflation cooling in many countries, gold began to rise on fears of a more significant banking crisis. There was also the risk of a US debt ceiling breach coming later, but both have receded.
Investors know that even if more banks fail, with the First Republic the latest at risk, the Treasury will step in to defend all deposits.
US economic data was also a drag on gold. The economy grew at an annualised rate of 1.1% during the first quarter, below the 2% expected. We wrote in our analysis yesterday that recent data was a downside risk for US growth.
Central banks are still big supporters of the gold price, which aligns with countries such as Brazil announcing trade deals with China in Yuan, ditching the US dollar. Central banks are responsible for a record 33% of the monthly demand for gold. They have been buying it more than ever since data began in 1950.
“This buying boom has helped push the price of gold to near-record levels and more than 50% higher than what models based on real interest rates would suggest,” said Ruchir Sharma of Rockefeller. “Clearly, something new is driving gold prices.”
Nine out of the top 10 central banks that are jumping into gold are in developing countries, including China, Russia, and India. There has also been increased demand from Brazil and South Africa.
“Thus the oldest and most traditional of assets, gold, is now a vehicle of central bank revolt against the dollar,” Sharma wrote. “Often in the past both the dollar and gold have been seen as havens, but now gold is seen as much safer. During the short banking crisis in March, gold kept rising while the dollar drifted down. The difference in the movement of the two has never been so large”.
XAUUSD Gold Prediction
The US dollar index could add pressure to the price of gold if it can find a bottom near the $100 level. Traders should beware of a further pullback with the recent failure above the $2,000 level in gold prices, with $1,950 being the next level of support for bullion.
