The collapse of gold following the Republican victory in the US elections was a real shock for XAU/USD bulls, yet it has not thrown them off track. The precious metal was seen as one of the main beneficiaries of Trump-era trade policies but, in reality, lost some of its hard-earned gains. Neither the political crisis in France, the declaration of martial law in South Korea, nor the breakdown of the ceasefire between Israel and Hezbollah has been able to support it. Nevertheless, Goldman Sachs still forecasts prices rising to $3000 per ounce, and it is not alone in this prediction.
Capital Economics believes that despite the strong headwinds in the form of a strengthening dollar and rising Treasury yields, gold is likely to rise. The rally in XAU/USD will be driven by alternative factors – central bank gold purchases and the revival of demand from China.
It is commonly accepted that gold rises during periods of Federal Reserve monetary policy easing and falls when the central bank raises interest rates. However, in 2022-2023, XAU/USD prices rose even amid the most aggressive monetary tightening by the Fed in decades. The key to this lies in record central bank gold purchases as part of de-dollarization and reserve diversification efforts, as well as China's insatiable appetite for gold.
BRICS Countries' Gold Reserves Share Dynamics
In 2024, these drivers seemed to have stopped working. The People's Bank of China (PBoC) has not bought gold for almost six months. However, Donald Trump's threat of imposing a 100% import tariff on goods from the Alliance countries may reignite central banks' interest in gold. De-dollarization does not necessarily imply the creation of a competing currency; it can also manifest in the diversification of foreign exchange reserves in favor of gold.
Record-high gold prices have cooled demand from Asian buyers. However, as XAU/USD corrects, demand is likely to rise. Beijing has not solved its own economic problems, including the real estate crisis and sluggish domestic demand. Trump's protectionism risks worsening these issues. In such a scenario, gold will likely be seen as a better alternative to stocks and bonds.
Structure and Dynamics of Chinese Gold Demand
Thus, the old and reliable drivers of the XAU/USD rally could once again support the bulls. But will they be enough to restore the uptrend? Donald Trump's tariffs and fiscal incentives could fuel inflation, forcing the Fed to pause its interest rate cuts, strengthening the dollar, and raising US Treasury yields. Can gold withstand such headwinds?
Technically, on the daily chart of gold, a child pattern (called Spike and Shelf) has formed within the parent pattern 1-2-3. A breakdown of support at $2620 per ounce will trigger sales. A successful breakthrough of resistance at $2660 will set up long positions.
