Gold price declines on upbeat market mood

• Gold price has fallen almost a percentage point lower on the back of improving risk sentiment. 
• Positive gains in Asia, strong US earnings and robust European GDP data have all helped boost sentiment. 
• Gold price may be unfolding a Measured Move price pattern lower on the charts.  

The Gold price (XAU/USD) trades lower by one percent on Tuesday, in the $2,310s at the time of writing, as a positive market mood dents safe-haven demand for the precious metal. 

Markets in Asia-Pacific closed on the whole in positive territory, with the Nikkie posting a 1.24% gain, Australia’s ASX200 up 0.35% and the Hang Seng rising 0.1% at the close. 

Although stock markets on mainland China edged lower to close in negative territory, this may have been on the back of traders booking profits ahead of the May 1 holiday after a run of up days. Indeed data out of China was on the whole positive, showing that the Caixin Chinese Manufacturing PMI hit a 14-month high in April, whilst in Europe, French and Spanish GDP growth beat estimates in the first quarter. 

Gold price rally driven by Central Banks and OTC buying – World Gold Council

The Gold price rally in Q1 was driven by a combination of strong central bank and OTC buying, according to a recent report by the World Gold Council (WGC). 

Total demand during the period was estimated at 1,238.3 tonnes compared to 1,269.7t in the previous quarter. 

Over-the-Counter, or OTC buying – which is not conducted via exchanges and so can only be estimated – rose by 136.4t compared to 126.9t in Q4. 

Heavy buying by central banks was a contributing factor in the rally in Gold price, with 289.7t of Gold bought by this market compared to 219.6t in the previous quarter. 

“Q1 saw no let-up in the pace of central bank gold buying: 290t (net) was added to official holdings,” said the report. 

Further details from the WGC report are as follows: 

• Gold mine production increased 4.0% YoY to 893t – a record first quarter for the WGC data series.
• Gold recycling climbed 12% YoY to 351t, the highest quarter since Q3 of 2020.
• Eastern investors exhibited different behavior to Western investors, whilst Western gold buying experienced healthy levels of profit-taking. “This contrasted with strong buying into the price surge in Eastern markets,” said the WGC report. 
• Global Gold ETF holdings fell by 114t, with Europe and North America experiencing quarterly outflows. 
• Demand from the jewelry sector remained healthy, given the price rally. Global jewelry consumption fell just 2.0%.
• Gold demand from the technology sector rose 10.0% YoY as the AI boom boosted buying from the tech sector.
   

Technical Analysis: Gold price possibly unfolding Measured Move

Gold price (XAU/USD) is potentially unfolding the final down wave of a Measured Move price pattern, most clearly visible on the 4-hour chart, which technical analysts use to analyze the short-term trend. 

XAU/USD 4-hour Chart

Measured Move patterns are composed of three waves that trace out a zig-zag pattern. The waves are often labeled A, B and C. The end of the final C wave can be estimated based on the length of wave A. It is usually either equal in length to A or a Fibonacci 0.681 ratio of A. 

A break below $2,290, however, would confirm the pattern is a Measured Move and lead to more downside as wave C unfolds, with targets at $2,267 (the 0.681 target) and $2,245 (A=C). 

The Moving Average Convergence Divergence (MACD) momentum indicator has started printing bearish red histogram bars and has crossed below its signal line lending the chart a negative tone.

Until the pattern is confirmed, however, there is still a chance Gold price could rally. A break above the cluster of Moving Averages and the peak of wave B at $2,350 would potentially usher in a new more bullish environment. This could then see a retest of the $2,400 highs.

Additionally, the trend for Gold price is up both in the medium and long-term, overall supporting the outlook for bulls.