04.09.202409:23 Forex Analysis & Reviews: Gold Retreats but Refuses to Give Up

Expectations of recovery in the U.S. labor market in August and excessively inflated speculative long positions increase the risks of a correction in gold. However, its medium—and long-term prospects remain bullish. Central banks' appetite to buy precious metals does not cool down even for a minute. The Federal Reserve's monetary easing cycle will lead to capital inflows into ETFs. Geopolitics will continue to faithfully serve buyers of XAU/USD.

According to Goldman Sachs, the tripling of central banks' gold purchases is driven by concerns about U.S. financial sanctions and risks associated with U.S. sovereign debt. These structural factors will continue to favor the precious metal, regardless of how high prices may rise. In the first half of the year, central banks' purchases reached a record high of 483 tons, 5% more than the previous peak in January-June 2023.

The World Gold Council notes that in July, central banks added 37 tons to reserves on a net basis, demand remains high, and it is likely to continue rising.

Dynamics of Gold Purchases by Central Banks

The Fed is on the verge of the first rate cut in the federal funds cycle, which will return capital to the ETF market. This component of investment demand for gold has been virtually absent over the last two years. However, that hasn't stopped XAU/USD from rising, as the precious metal did so thanks to other bullish factors. It is about to gain a new one, allowing it to aim for a record.

Finally, gold offers excellent conditions as a tool for hedging various risks. This includes geopolitical risks associated with situations in the Middle East and Eastern Europe, political risks due to the possible return of the U.S. to trade wars if Donald Trump wins in November, pressure on the Fed from the president, and risks of defaults on U.S. bonds.

Goldman Sachs predicts the rise of precious metal futures to $2,700 per ounce in the first quarter of 2025. How quickly this mark is reached depends on non-farm employment data in the U.S. Investors are waiting for the labor market recovery; however, in case of its slowdown, the chances of a 50 basis point cut in the federal funds rate in September will increase from the current 42%, which would hit the dollar and allow XAU/USD to spread its wings.

The highest speculative net-long positions may hamper gold's bullish advance in four years. However, the latest report showed that asset managers and hedge funds were cutting short positions more than they were increasing long ones—a good sign for the bulls on XAU/USD.

Technically, on the daily chart of gold, there is a combination of the Three Indians and Splash and Shelf patterns. This combination increases the risk of a pullback if the quotes fall below $2474 per ounce. Successfully breaching this support will allow the build-up of shorts formed from $2515.