The Gold Market was Calm in June: Key Price Trends to Watch

The price of gold remained relatively stable in June, despite experiencing the largest daily drop in four years at the beginning of the month. While the gold market shows some short-term weakness, the long-term upward trend persists.

This month, gold investors were particularly focused on the fact that China’s central bank did not increase its gold reserves in May, breaking a streak of monthly increases that had lasted for a year and a half. Additionally, the Federal Reserve meeting and interest rate expectations influenced the financial market.

In June, the price of gold remained steady, fluctuating within a narrow range. Month-over-month, the price of an ounce decreased by just 0.02 percent to $2,326.4.

Historically, the first month of summer has been relatively calm for the gold market

However, on June 7, the price of gold dropped by 3.5 percent in a single day, marking the largest daily decline since November 2020. This drop occurred just before the release of U.S. inflation and labour market data. Despite the fall, the recovery was swift, with the technically significant support level of $2,280-$2,300 helping to stabilise the price

On the other hand, gold started July on a strong note, gaining 1.4 percent in the first three trading days.

China’s Central Bank Paused its Gold Purchases

The decline in gold prices on June 7 was partly due to news that the Central Bank of China had paused its gold purchases. Although the central bank bought gold for the 18th consecutive month in April, it did not increase its official gold reserves in May.

Read more on the topic here: China is transforming the gold market

In the long term, it is unlikely that China will stop buying gold entirely, and a significant portion of its purchases is likely unreported.

Historically, China has taken several-month breaks in gold buying, making the recent year-and-a-half streak an exception

However, if China ceases gold bullion purchases in the coming months, the gold market may continue to trend sideways.

Meanwhile, a recent survey by the World Gold Council revealed that 29 percent of central banks plan to increase their gold reserves and gold holdings in the next 12 months. Additionally, 81 percent of respondents expect central banks to continue increasing their reserves overall. Therefore, it is unlikely that central bank support for the gold market and precious metals will diminish.

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Furthermore, 62 percent of respondents believed that countries’ dollar reserves will decrease over the next five years, while 69 percent anticipated that countries’ gold reserves will increase.

China currently plays the most significant role in influencing the gold market, both through its central bank and its retail investors. Despite a decline in demand for physical gold from investors in the US and Europe, retail demand in China remains very strong.

The Fed Meeting

Federal Reserve policymakers met in June to update their economic forecasts and interest rate plans. As expected, they left interest rates unchanged, which did not surprise the markets.

However, what was surprising was the Federal Reserve’s future plans.

Previously, it had anticipated three interest rate cuts this year, but now it has reduced this to just one

The central bank expressed concern that inflation might not slow down quickly enough to reach their 2 percent inflation target.

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The more dovish-than-expected tone from the Federal Reserve put gold under slight pressure again, as it means US Treasury yields could continue to stay higher. In recent decades, it has been the case that when the interest rate on US government debt rises, it puts pressure on gold.

At the same time, it was noticeable that the increase in bond interest rates at the end of June had only a temporary impact on gold, and in the long term, it will not break the upward trend in gold prices. This indicates that the US bond market and the dollar exchange rate are having less and less influence on the price of gold. This trend has been particularly evident over the last two years.

A Technical Analysis

Despite experiencing the largest daily decline in almost four years in June, gold traded within a relatively narrow range in the financial system. Over the past three months, the $2,280-$2,300 region has emerged as the strongest support level, with gold rebounding from this range 4-5 times during this period.

In some opinions, gold is in a long-term uptrend after decisively crossing the $2050-2080 level. Considering the technical picture, the $2280-2300 level could present an attractive entry point in the market.

However, it is worth noting that in recent months, declines have been sharp and fast, while subsequent rises have been smaller. This trend indicates that local peaks have been progressively lower, signifying short-term weakness. If the $2280 level is breached, the price may quickly move to the $2100-$2200 range.

If the $2280 level holds, we could see new gold price records as early as this Autumn. In August and September, demand for gold has historically been seasonally high in Asia, and the expected lowering of interest rates is anticipated to continue into the autumn.