Gold trade higher after pulling back on Monday following the news that the People’s Bank of China (PBoC) has stopped purchasing Gold for the second month in a row. The PBoC is one of the largest consumers of the precious metal and for 18 consecutive months until May accumulated Gold. Gold forms a two-bar reversal pattern on the daily chart, which could indicate a short-term pullback. Gold (XAU/USD) is trading higher in the $2,360s on Tuesday – stabilizing after the heavy sell-off on Monday. Gold’s weakness at the start of the week came after the news that the People’s Bank of China (PBoC), one of the largest consumers of Gold in the world, had not bought any Gold for the second month in a row in June, after 18 consecutive months of reserve-building, according to data from the PBoC.
Gold is declining as a result of the US Treasury bond market absorbing political risk from an increased chance that former President Donald Trump will win the US presidential election in November. If Trump wins the presidency, he is expected to cut taxes and borrow, leading to a worsening fiscal position for the US. Critics say his fiscal profligacy will lead to higher inflation, which in turn will keep interest rates high. Gold is falling because it is a non-interest-bearing asset that becomes less attractive to investors when interest rates are high.
The possibility of a Trump presidency is pushing bond prices down and bond yields up, benefiting the US Dollar (USD) because of its high correlation with yields. This, in turn, weighs on the Gold price, which is primarily bought and sold in USD. After a recent televised debate in Atlanta, in which President Biden struggled to answer several of the questions, critics raised doubts about his cognitive capacity given his advanced years and possible dementia. The upshot is that Trump has increased his lead in opinion polls. Additionally, if Biden steps down, his number two, Kamala Harris, is seen as unlikely to have Biden’s broad appeal.
Gold has formed a two-bar reversal pattern (green shaded rectangle) after climbing to a major resistance level at the June 7 high at $2,388. This pattern forms after a long green-up day is followed by a long red-down day of a similar length and size. When this occurs at a market top, it can be a short-term reversal sign. Gold’s outlook is unclear, but it could pull back now, perhaps falling to the 50-day Simple Moving Average (SMA) at $2,342.
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