During Wednesday's Asian session, spot gold in London was trading around the $4,400 per ounce mark, with prices fluctuating in a tight range. Market participants are adopting a cautious stance ahead of the release of the US July Consumer Price Index (CPI) later tonight.
Since the start of August, international gold prices have rebounded by over $300 from near the $4,100 per ounce level. The validity of the previously identified "mid-term bottom zone of $3,800 to $4,100 per ounce" is being continuously confirmed.
The core driver of this rebound stems from a three-dimensional convergence of factors. On the macroeconomic front, the weak US July non-farm payroll data has significantly cooled market expectations for Federal Reserve rate hikes. The US Dollar Index has fallen below the 100 mark, easing the constraint on gold from real interest rates.
From the central bank gold purchasing perspective, the People's Bank of China has increased its gold holdings for the 21st consecutive month, while the Bank of Korea has resumed gold allocation for the first time in 13 years. Global central bank gold purchases are providing a solid floor for gold prices.
On the capital flow front, global gold exchange-traded funds (ETFs) have recorded net inflows of $30 billion, creating a positive resonance in the capital markets.
Based on the cyclical positioning framework, international gold prices have moved out of the previous bottom zone of $3,800 to $4,100 per ounce and are now trading within the $4,380 to $4,450 per ounce range. Short-term resistance above is seen at the $4,450 to $4,480 per ounce area; a clear break above this level could pave the way towards $4,500 to $4,550. Support below is focused on the $4,380 to $4,400 per ounce levels.
Overall, the mid-term bottom zone has been gradually confirmed, and the short-term rebound is supported by macroeconomic easing and capital inflows. However, a trend-driven rally will require more macro signals for confirmation. The key catalyst tonight is the US July CPI data. If inflation comes in below expectations, it could further dampen expectations for Fed rate hikes, potentially allowing international gold prices to expand into the $4,450 to $4,500 per ounce range. Conversely, if the CPI exceeds expectations, short-term gold prices might consolidate repeatedly within the $4,350 to $4,450 per ounce range.
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