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Gold Edges Higher Amidst Global Central Bank Buying

Gold (XAU/USD) continues its upward trajectory on Wednesday, recovering from a sell-off triggered by the People’s Bank of China (PBoC) on Monday. Despite PBoC’s absence from the market, global central bank demand for gold remains strong, providing support for the precious metal.

Central Bank Buying Remains Robust

Recent data reveals that despite the PBoC halting its gold purchases in June—extending its pause from May after an 18-month buying spree—global central banks continue to show strong demand for gold. This sustained interest has balanced the negative impact of China’s absence, with other major central banks stepping in to fill the gap.

“Other central banks continue to participate, with India's central bank buying more than nine tons of gold in June, the National Bank of Poland increasing its gold reserves by four tons, and the Czech National Bank showing a rise of two tons in gold reserves,” said Bert Melek, Head of Commodity Strategy at TD Securities. This broad participation indicates a resilient demand for gold beyond the PBoC.

Powell’s Comments and Market Reaction

Federal Reserve (Fed) Chairman Jerome Powell’s testimony to the Senate Banking Committee on Tuesday did not provide a specific timeline for interest rate cuts, instead emphasizing a data-dependent approach. Investors, who had hoped for clearer guidance, were left in uncertainty, which typically would pressure gold prices due to the metal’s sensitivity to interest rate expectations.

Despite the lack of concrete details, gold prices remained relatively stable. Powell acknowledged progress on inflation and dismissed the possibility of rate hikes, which mitigated the negative impact of his comments. He highlighted the balance of risks in timing rate cuts, which suggests a cautious yet balanced approach from the Fed.

Technical Analysis: Gold’s Recovery

Gold is trading in the $2,370s, finding upward momentum as other central banks continue their gold purchases. Technically, gold is recovering after forming a bearish two-bar reversal pattern in early July. This pattern, characterized by a long green-up day followed by a long red-down day, can signal a short-term reversal.

XAU/USD Daily Chart

Short-Term Outlook: Gold may pull back to the 50-day Simple Moving Average (SMA) at $2,343.
Bullish Signals: The break above the downward trendline on June 27 established a more bullish outlook. A break above Friday’s peak of $2,393 could continue the sequence of higher highs, targeting the $2,451 all-time high.
Bearish Risks: The previously bearish Head & Shoulders pattern has been invalidated by recent recovery. However, if a complex topping pattern forms and the price breaks below the neckline at $2,279, a reversal to $2,171 (the 0.618 Fibonacci retracement level) may still be possible.

Conclusion

Gold’s resilience is underpinned by continued central bank buying despite the PBoC’s absence. While Jerome Powell’s cautious stance on rate cuts could have pressured gold, his balanced comments helped maintain stability. Technically, gold remains in a recovery phase with potential for further gains if key resistance levels are breached. The broader demand from global central banks is expected to support gold’s ascent towards TD Securities’ target of $2,475 by Q1 2025.