Gold demand in China have risen, trading around $2,520 on Thursday, boosted by positive data from China. The rise in demand from the world’s largest gold consumer marks the first increase since March 2024, fueling optimism in the precious metals market.
Gold Gains as China Demand Rebounds
Gold prices are climbing as recent data from the World Gold Council (WGC) shows a 17% rise in China’s gold imports for July. This is the first increase in several months, indicating a potential recovery in Chinese demand. Additionally, North American funds reported a modest inflow of 8 metric tons, valued at $403 million, further supporting gold prices.
US Dollar Weakness Supports Gold
The decline in the US Dollar Index (DXY) has also contributed to the rise in gold prices. The DXY, which measures the dollar’s strength, has fallen from its recent peak of 101.18 to the 100.90s. As gold and the US dollar often move in opposite directions, this decline has provided a boost to gold.
Upcoming US Economic Data and Gold’s Prospects
Traders are now looking ahead to key US economic reports, including jobless claims and Gross Domestic Product (GDP) data, for clues on the future of US interest rates. The job data is particularly relevant after Federal Reserve Chairman Jerome Powell highlighted risks to the labor market due to high interest rates. Any negative economic news could drive gold prices higher, as it would increase the likelihood of the Fed lowering rates sooner.
Speculation Around Fed Rate Cuts
While a rate cut at the Fed’s September meeting seems likely, the size of the cut remains uncertain. Current market speculation suggests a 0.50% “mega cut” could still be on the table, with a 34.5% probability according to the CME FedWatch tool. Another indicator, the December 2024 CBOT fed funds futures contract, suggests a total cut of 100 basis points by the end of the year. This could include a significant 0.50% rate reduction in one of the remaining meetings.
Key Inflation Data to Impact Gold Prices
On Friday, all eyes will be on the release of the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index. Economists predict core PCE inflation could rise to 2.7% in July from 2.6% in June. Higher inflation figures could weaken gold, as it would signal the need for prolonged higher interest rates. Conversely, lower-than-expected inflation could strengthen gold by increasing the odds of rate cuts.
Potential Risks for Gold
Despite the positive outlook, some analysts, like Daniel Ghali from TD Securities, warn of risks due to the crowded long positions in the gold market. On Thursday, TD Securities announced they are entering a short position on gold, with a target price of $2,300 and a stop-loss at $2,675.
Technical Analysis: Gold in a Range
Gold is currently trading within a narrow range between $2,500 and $2,531. While the short-term trend may appear sideways, the medium and long-term trends remain bullish. A break above the $2,531 high from August 20 could signal further gains toward the $2,550 target. However, if gold drops below the $2,470 level, it could indicate the start of a short-term downtrend.
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