Source: Golden Ten Data

After opening on Monday (April 8), the price of gold began a correction. At most, it fell by more than $20, approaching the 2,300 mark. As of press release, the price of gold is trading below the 2310 mark. The hawkish remarks made by Federal Reserve officials last week and the news of Israel's withdrawal from Gaza are alleged to have triggered a correction in gold prices.

Institutional analyst Richard Snow said that although US Treasury yields continued to rise last week, gold prices continued to strengthen. Due to its safe-haven nature, the recent escalation of the situation in the Middle East has increased the appeal of gold. However, the market has returned to the massively overbought region, which means there may be a cooling period at the beginning of this week without further escalation of the situation.

The price of gold began to soar in early March. Since then, the price of gold has risen 14% and set a series of new records. On Friday, gold ignored strong non-agricultural production and hit a new record high, including various factors such as expectations of the Federal Reserve's interest rate cut, speculative purchases, and central bank purchases, which kept gold's record rise strong. The cumulative increase of more than 4% last week was achieved for the third week in a row.

Phillip Streible, chief market strategist at Chicago's Blue Line Futures, said that there are too many capital inflows, and everyone is chasing high market positions. Coupled with strong purchases and speculative purchases by the central bank, everything has supported the price of gold. David Meger, head of metals trading at High Ridge Futures, said, “While concerns about inflation are still a bit difficult later this year, this is still a potentially positive environment for the gold market.”

Bart Melek, head of commodity strategy at TD Securities, said, “Some people may have made up some shortfalls. Technicians have already pushed the price of gold above the $2,300 resistance level.”

Gold continues to climb to record highs and remains a mystery to many market observers. Amid this surge, one clear and puzzling fact is that investors are not buying gold ETFs; this should have been one of the easiest ways to get gold. The continued outflow of gold-backed ETFs indicates that an important group is missing out on opportunities or is cashing out.

“This is one of the weirdest things I've seen in the ETF world,” said ETF Store President Nate Gerrage. “What is particularly interesting is that demand for gold is very strong on other channels, such as central bank purchases and direct purchases from individuals and private investors.”

“Long-term investors who bought gold ETFs many years ago made a profit settlement”, which is why Citigroup explained the weak net inflow of ETFs. However, stable and significant capital outflows have not had a greater impact on prices, which also suggests that strong demand has absorbed the sale of gold ETFs. According to Joe Cavatoni, head of the ETF platform at the World Gold Council, central banks will be natural buyers. In an interview, he said, “There are other investors who are buying physical gold, so this won't have any impact. Guess where it goes? Entering the OTC market will be taken over by central banks.”

Although the current overbought level may cause short-term adjustments in gold prices, most people are still bullish on the outlook for gold prices. Weak futures positions indicate that there is more room for speculation, which may drive the price of gold to rise further, while the much-anticipated shift to interest rate cuts by the US Federal Reserve may cause ETF investors to once again flock to gold ETFs after several months of capital outflows.

In the larger futures and OTC markets, gold trading activity has risen sharply, indicating that the usual institutional buyers — central banks, investment banks, pension funds, and sovereign wealth funds — are participating. Options trading activity is also heating up, and the market anticipates that the price of gold may rise further as options traders scramble to recoup their risk exposure. The number of outstanding contracts on New York futures has been rising, which indicates that fund managers' long-term bets are rising. At the same time, the overall trading volume has already exceeded the number of open contracts, which suggests a surge in the kind of fanatical intraday trading that algorithmic funds are good at.

Another analysis found that gold purchases mainly occurred on Mondays, Wednesdays, and Fridays. The gold market is famous for being sensitive to changes in US economic data. These days are a concentrated period for the release of important economic data, including manufacturing, employment, GDP, and inflation data. But it has also puzzled analysts, because recent data is very strong, and as a result, the Fed is expected to cut interest rates later than expected a few months ago, and the rate cut will be more moderate. However, even so, gold continued to rise strongly. The only explanation is that the market narrative is shifting towards sticky inflation and a possible hard landing, mixed with massive geopolitical uncertainty and central bank demand driven by de-globalization.

So, what should you pay attention to during the pullback period? Fxstreet analysts said that the extremely overbought 14-day Relative Strength Index (RSI) on the daily chart continues to remind gold buyers to be cautious, but if the daily market closes above the level of 2,300 US dollars (closing at 2329.83 US dollars/ounce last Friday), it may strengthen bullish interest in gold prices and set the next target at the psychological mark of $2,350. On the other hand, any downward correction may find initial support at the April 2 high of $2,281, followed by the psychological threshold of $2,250. If the latter is breached, it could trigger a sharp drop, causing the price to approach $2,200.

edit/lambor