Is It Time for A Deep Pullback in XAU With PBOC not Buying Gold?

Gold placed a new record high at $1,531.60 a month ago, but buyers haven’t been able to break it since then, despite multiple attempts. Late last week we saw the latest attempt from Gold buyers to push the price above this level, but they failed once again and markets reversed course after the US NFP data.

GOLD dropped to a low of $2,470 last week but found strong support at the 20-day SMA (gray) on the daily chart. Buyers re-entered the market on Thursday, following two bullish reversal signals, marked by hammer candlesticks. This price action pushed gold close to $2,530 after the release of the US August Non-Farm Payroll (NFP) report, driven largely by increasing expectations of a 50 basis point rate cut by the Federal Reserve. Following the report, the likelihood of such a cut jumped to 57%, spurred by weaker-than-expected job numbers.

Gold’s Reversal After NFP Details

Despite the initial rise, buyers failed to push the price to a new high. Upon closer inspection, traders noticed that the NFP report wasn’t weak enough to warrant a 50 basis point rate cut. The Bureau of Labor Statistics (BLS) revealed that while Nonfarm Payrolls in August fell short of expectations, they had improved from July’s downward revision. Additionally, the unemployment rate dropped to 4.2%, and average hourly earnings rose, positive indicators that softened the case for a larger rate cut. The July payroll dip was attributed to Hurricane Berryl’s impact.

Gold Price Chart Daily – Support Levels

Amid these mixed signals, gold prices retreated despite a dip in US Treasury yields. The 20-day SMA provided a key support level again, with the metal closing higher by $10 from the lows on Friday. While gold remains in an uptrend on the longer time frames, the short-term outlook has shifted to the downside.

After hitting a daily high of $2,529.15 during the NFP volatility, XAU/USD reversed sharply and formed a “bearish engulfing” candlestick pattern, signaling potential further losses. However, for sellers to gain more control, the 20-day SMA must be broken, paving the way for additional declines. One key support level to watch is $2,470, which will be crucial to breaking before deeper losses can materialize. This week’s price action will be critical in determining the next move.

China Central Bank Stopped Buying Gold in May

In August, the PBOC reported no new Gold acquisitions, confirming its reserves remained at 72.80 million troy ounces. This marks the end of a long buying streak, with the last reported purchases in May. Speculation has since arisen that the PBOC is becoming more price-sensitive in its buying strategy. When China initially paused purchases in May, gold prices experienced a significant drop. However, dip buyers quickly stepped in, and XAU has demonstrated remarkable resilience. While the lack of recent purchases could signal short-term bearishness, any future announcements of renewed buying by the PBOC are likely to drive XAU prices higher. The market remains sensitive to China’s next move in the gold market.

• In February, the People’s Bank of China (PBOC) increased its gold reserves by 390,000 ounces.
• In March, the PBOC added 160,000 ounces of gold to its reserves.
• In April, the PBOC purchased an additional 60,000 ounces of gold.
• These consistent monthly purchases highlight China’s ongoing strategy to diversify its foreign reserves.

Gold Live Chart