(Kitco News) - While a reversal in risk sentiment across global financial markets has put pressure on gold, one market strategist noted that the precious metal was left vulnerable after a key segment of the market closed for the week.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted that Chinese markets have closed for the next five days. As a result, a key bid in the gold market has “temporarily evaporated, exposing gold to additional downside pressure.”
“The key question now is whether Chinese investors will return next week with the same intensity, or whether price softness during the holiday lull will prompt further long liquidation,” Hansen said in a note Thursday.
While gold prices have managed to hold initial support at $3,200 an ounce, Hansen said there is room for gold to fall to a key retracement level at $3,165 an ounce.
“A deeper correction could extend toward the USD 2,950 to 3,000 zone, a psychologically and technically significant area,” he said. “With the speculative community reducing exposure and Chinese demand on pause, the short-term path for gold hinges on whether Asian buying returns post-holiday. Should it fail to re-emerge with conviction, further long liquidation cannot be ruled out.”
Over the past month, the gold market has seen a resurgence of demand from China. In an interview with Kitco News, Joseph Cavatoni, Senior Market Strategist at the World Gold Council, said preliminary data shows investment flows into Chinese-listed gold-backed exchange-traded funds have hit record highs.
“Eastern investors are back at it now,” he said. “We’ve seen more flows into China in April than we have into the U.S.”
“Amidst Trump’s tariff threats, China’s gold appetite has risen sharply. This is quickly reflected in the Shanghai gold premium, which hit a record $137/oz (chart 04) amid Trump’s threats. Although the premium has dropped to around $62/oz, it remains elevated compared with the 15-year average of $5/oz, indicating strong Chinese appetite,” he said.
While China’s week-long absence from the gold market could weigh on prices, many analysts see a potential correction in gold as a buying opportunity.
“With several key structural drivers unlikely to dissipate in the near term, we continue to view the risk as skewed toward even higher prices over time,” said Hansen.
Hansen noted that growing weakness in the U.S. economy is expected to force the Federal Reserve to cut interest rates, even if inflation remains stubbornly elevated. Lower interest rates reduce the opportunity cost of holding gold.
He added that he also expects central banks to continue buying gold to diversify foreign reserves and hedge against geopolitical uncertainty and economic risks.
The latest data from the World Gold Council shows that central banks bought 243.7 tonnes of gold between January and March, down 21% from the 309.9 tonnes bought during the first quarter of last year.
“We anticipate that heightened levels of uncertainty will maintain gold’s role as a valuable component of international reserves going forward, and this will support demand in the near term,” WGC analysts said.
