Source: Jin10 Data

During the European session on Friday, the precious metals market experienced a sudden volatility in spot gold and silver prices, plunging due to China's central bank maintaining its gold reserves last month ahead of the crucial release of US May nonfarm payrolls data. The short-term drop in gold widened to $20, with intraday losses reaching 1%, hitting a two-day low. Silver also fell more than 1% during the day.

China's central bank stated that the country's gold reserves were 72.8 million troy ounces at the end of May, which is the same as April and marks the end of a trend of increasing gold reserves for 18 consecutive months.

With the price of gold hitting repeated all-time highs this year, there are signs of a slowdown in China's demand, which is the world's largest consumer of gold. Previously, customs data showed that China's physical gold purchases overseas fell to 136 tonnes in April, down 30% from the previous month and the lowest of the year. While US interest rates are a major factor in the price of gold, its recent strength has largely been due to strong buying from Chinese consumers. China's central bank has also shown sustained interest in gold to diversify its reserves. Therefore, any slowdown in its imports could cause gold bulls to pause for thought.

Despite the significant impact of US interest rates on the price of gold, its recent strength is due in large part to strong buying from Chinese consumers. China's central bank has also shown sustained interest in gold to diversify its reserves. Therefore, any slowdown in its imports could cause gold bulls to pause for thought.

Soni Kumari, a commodity strategist at ANZ, stated that China's demand will remain strong in 2024, but import volumes in the recent quarter may stabilize.

In addition, the Chinese government has issued warnings against excessive speculation, further weakening the appeal of gold. As a latest measure to curb speculative trading on the market, the Shanghai Gold Exchange has announced that margin requirements for some futures contracts on gold T+D and others will increase to 11% during the 2024 Dragon Boat Festival.

Forexilve analysts say traders may be spooked by headlines from China in the short term. "I mean, in my view, gold still needs to see a deeper correction after its rally above $2,400. The June lows of $2,314-15 still offer key support. Thus, the recent decline is not enough to suggest a major technical shift in gold yet."

The market is currently watching for the release of the US nonfarm payrolls data tonight and preparing for the possibility that job growth may fall below the consensus estimate of 185,000 economists.

IG market strategist Yeap Jun Rong said, "With inflation running at around 3%, it may take a sharp decline in the labor market to convince the Fed to cut rates earlier. Any weakness in labor market data could boost gold prices."

Editor / jayden