Gold prices continued their record-breaking rally on Monday, buoyed by speculative buying and ongoing tensions in the Middle East. These factors overshadowed strong U.S. job growth in March. Analyst Kyle Rodda (Capital.com) says futures prices show investors are chasing momentum and overly optimistic about gold at current levels.
Geopolitical tensions in the Middle East could be another driving force for gold, according to Rodda. Bullion’s 12% gain for the year so far has been fueled by strong central bank buying, safe-haven inflows amid elevated geopolitical risks, and demand from momentum-following funds.
Despite U.S. job growth exceeding expectations in March, which suggests the economy ended the first quarter on solid ground, this may delay anticipated Federal Reserve interest rate cuts this year. That said, lower interest rates reduce the opportunity cost of holding bullion.
According to senior analyst Matt Simpson from City Index, the market seems inclined to test $2,400. He believes that there is no sign of a top forming, which means it might reach that level. However, he does foresee some bearish volatility at some point, which could lead to some bulls being shaken out from these highs. The higher the market goes, the more attractive it becomes for some larger players to make profits.
On the physical side, gold demand in India remained tepid last week due to the blistering rally in domestic prices that put off buyers. Meanwhile, premiums held firm in top consumer China.
The Latest Investment Frenzy in China has Caused Wild Swings in the Gold ETF.
Chinese investors rush to buy an ETF that invests in gold companies, seeing it as a Safe Haven amid economic challenges. The ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF became a target of frenzied trading, halting trading twice since last Tuesday. Trading for the ETF stopped until 10:30 a.m. to protect investors’ interests. Monday local time to protect investors’ interests. The ETF’s premium over its underlying assets reached more than 30%, the highest on record, as of April 3. This came after the ETF’s price had gained more than 40% in the past four sessions. It fell by 10% after trading resumed on Monday.
Investors in China are attracted to sectors with market strength, such as gold, as property woes, volatile stocks, and falling deposit rates reduce their options. The ETF fervor is a fresh example of yield-hungry Chinese investors flocking to pockets of market strength. They see gold as a sector that is relatively immune to a struggling economy. In recent weeks, gold has staged a record-setting rally, reaching an all-time high, due to expectations of US interest rate cuts and rising geopolitical tensions. China’s central bank is also a big buyer, having purchased the precious metal for its reserves for the 17th straight month in March.
Shares of Chinese gold miners have also produced stellar gains this year. Zijin Mining Group Co. and Shandong Gold Mining Co. have both risen more than 50% from their respective lows earlier in the year. The two stocks have entered overbought territory based on technical indicators.
Chinese investors’ recent frenzy over a gold ETF echoes their earlier buying spree of overseas stocks. This year’s local stock market slump drove them to onshore funds investing in foreign stocks. In one case, investors pushed the premium on a Japan equity ETF (also by China Asset Management) above 10%, triggering a warning.
China Asset Management, which sells the gold ETF, has added China Galaxy Securities Co. as a liquidity provider for the ETF. Bloomberg Intelligence analyst Rebecca Sin said, “Gold is trading at an all-time high, and gold ETF demand has surged in the past week with almost $600 million of net inflows into gold ETFs globally. Demand in Mainland China could continue as investors look to diversify their holdings with commodities and foreign ETFs.”
XAU/EUR Long (Buy)
Enter At: 2163.44
T.P_1: 2172.75
T.P_2: 2183.33
T.P_3: 2192.13
T.P_4: 2202.73
T.P_5: 2215.99
T.P_6: 2229.05
T.P_7: 2244.30
T.P_8: 2264.87
T.P_9: 2285.34
S.L: 2068.56
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