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After relatively stable performance at the beginning of this week’s trading, the price of an ounce of gold, XAU/USD, jumped yesterday to the $2037 resistance level. It is stable around its gains at the time of writing the analysis. It is benefiting from investors’ fears that the US debt talks will falter and that the US inflation numbers come in support of stopping the course of the US Central Bank’s tightening policy.
The buying of gold may not be off the charts that was observed in the second half of 2022, but the purchase of gold by global central banks is off to a strong start until 2023. This is according to the latest report issued by the World Gold Council, and demand for hard currency by global money printing bodies reached to 228 tons in the first quarter, an increase of 176% compared to 82.7 tons one year earlier. While it was lower than the numbers seen in the past two quarters, it was the strongest first quarter on record. According to the WGC, “This is impressive given that it follows last year’s record pace of demand.”
Total production in the fourth quarter rose to a record high of 1,224 tons in the first quarter after massive purchases in recent quarters. As with the numbers for both the third quarter and fourth quarter of 2022, the data for the current quarter contains a significant underestimation of unreported activity.
Four central banks accounted for the majority of reported purchases during the first quarter:
The Monetary Authority of Singapore (MAS) was the largest single buyer during the quarter thanks to the addition of 69 tons of gold, the first increase in its gold reserves since June 2021, confirming that buying in the first quarter was not the domain of emerging markets only. Diamond gold reserves now total 222 tons, 45% more than they were at the end of 2022.
The People’s Bank of China (PBoC) revealed that its gold reserves increased by $58 trillion. Since the resumption of purchase reports in November 2022, the People’s Bank of China (PBoC) has added 120 tons to its gold reserves, bringing it to 2,068 tons (4% of total reported gold reserves). The State Administration of Foreign Exchange reported the latest reserves data for April which revealed that China’s gold reserves rose to a record high of 66.76 million ounces at the end of April, up from 66.5 million ounces at the end of March.
Turkey was once again a big buyer of gold during the quarter: official reserves rose by 30 tons. Combined purchases of 45 tons in January and February were met with a sale in March – the first since November 2021. The 15 tons of gold was sold on the local market after a temporary partial ban on imports of gold bars. (34% of total reserves). The Reserve Bank of India also added a modest 7 tons in the first quarter, taking its gold reserves to 795 tons, while the Czech Republic (2 tons) and the Philippines (1 ton) were also notable buyers.
An important update came during the first quarter of the Russian Central Bank in the resumption of reporting on gold reserves, with data re-populated from the end of January 2022 to date.
We can see that in the first quarter the official gold reserves of Russia decreased by 6 tons, to 2327 tons (25% of the total reserves). However, even with this decline – which may be related to the minting of coins – the country’s gold reserves are 28 tons higher than when they stopped reporting last year.
The sale was again more modest by comparison. The Central Bank of Uzbekistan (-15t) and the National Bank of Kazakhstan (-20t) were the biggest gold sellers during the quarter. According to the WGC, it is not uncommon for central banks that buy gold from domestic sources — as both Uzbekistan and Kazakhstan do — to be frequent gold sellers. Cambodia (-10t), UAE (-1t) and Tajikistan (-1t) were other notable sellers. Croatia reported a 2-tonne drop in its gold holdings in January, but this was a transfer to the European Central Bank – which is required of all countries joining the eurozone.
- There is no change in my technical point of view, as the general trend of the XAU/USD gold price is still bullish as long as prices are stable around and above the psychological resistance of $2000 an ounce.
- In general the weakness of the US dollar and the increase in global geopolitical tensions and fears of global economic recession will remain important factors for the continuation of the bullish trend of the yellow metal.
- Currently, the closest levels of resistance to further control of the bulls are 2035, 2047, and 2070 dollars, respectively, which are sufficient for the technical indicators to move towards strong overbought levels.
On the other hand, breaking the support levels of 1997 and 1985 dollars will be important to start a downward trend change. US inflation figures and agreement on the amount of US debt are the most important factors influencing gold in the remainder of the week’s trading.
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