Spot gold fell approximately 14% in the second quarter of this year, marking its largest quarterly decline since 2013. Having surged to a new high above $5,400 at the beginning of the year, gold is now struggling repeatedly around the $4,000 mark. Coupled with the emergence of a "death cross" pattern on technical charts, the gold price may face greater downward pressure ahead.
Analysis from Renaissance Macro Research indicates that gold has formed its first death cross of this cycle, confirming the bubble warning signal the firm issued in the fourth quarter of last year. The death cross is a bearish technical signal that appears when an asset's 50-day moving average falls below its longer-term moving average, in this case the 200-day average. This signal suggests increasing short-term selling pressure and potentially the start of a sustained downtrend.
Renaissance Macro Research stated, "This is the worst three-month performance in over a decade." Contributing factors include hawkish commentary from Federal Reserve officials, continued strength in the U.S. dollar index, and persistent outflows from gold ETFs. The firm noted bluntly, "The logic is simple: as a non-yielding safe-haven asset, gold currently holds no advantage."
Precious Metals Post Dismal Q2 Performance
Precious metals have just delivered a dismal second-quarter report card: gold recorded its worst quarterly performance since Q2 2013, while silver posted its largest quarterly drop since Q1 2020. The primary reasons include the strengthening U.S. dollar and market expectations that the Federal Reserve will raise interest rates in the coming months.
The COMEX July gold contract plunged 13.4% in the second quarter to $4,022.90 per ounce. Most of the decline was concentrated in June, which saw a sharp 11.8% drop, the largest monthly fall since June 2013. The July silver contract tumbled 20.4% in Q2 to $59.477 per ounce, with a 21.34% decline in June marking its largest monthly drop since September 2011.
Driven by a weaker dollar, central bank purchases, and a surge in retail interest, gold prices hit a record high in January of this year. However, they have since fallen nearly 25% and are currently trading just above $4,000 per ounce.
What's Next for Gold?
Analysts at MUFG stated, "Gold is likely to remain under pressure in the near term as softer energy prices, a firm dollar, and expectations for higher-for-longer interest rates continue to reduce demand for the non-yielding safe-haven asset."
Ole Hansen, Head of Commodity Strategy at Saxo Bank, believes, "Gold prices first need to break above $4,100 to reasonably assume a bottom is in place."
Ipek Ozkardeskaya, Senior Analyst at Swissquote, noted that $4,000 is seen as a "key support level" for gold. If the price cannot recover to $4,115 per ounce, it remains vulnerable to deeper selling.
However, gold remains an attractive asset for long-term investors. Ozkardeskaya added, "Last quarter, many central banks sold portions of their gold reserves to cope with soaring energy prices, and they will eventually need to replenish these reserves. The question is: at what price?"
Suki Cooper, Global Head of Commodities Research at Standard Chartered, believes the recent decline in precious metals prices reflects "liquidity and profit-taking" rather than a "change in narrative." When investors need cash, they sell assets that are liquid and have performed well. Gold and silver, following their historic rally, fit both criteria.
Cooper stated that short-term selling pressure does not necessarily mean the long-term outlook for gold is broken. In her view, central bank demand, debt concerns, fiat currency anxiety, and portfolio diversification needs still support a return for gold to above $4,500.
Key signals to watch now include whether central banks will continue buying gold, whether Indian demand will improve after seasonal weakness, whether the gold price can hold around $4,000, and whether interest rates will decline.
In summary, the structural supportive factors for gold remain solid, but the short-term direction remains unclear. At the time of writing, spot gold was up 0.66% at $4,058.09 per ounce. This followed remarks from a Federal Reserve official at the ECB Forum in Portugal that were more dovish than expected, easing market concerns about the Fed's next move.
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