Wang Gang from the Bank of China Guangdong Branch said that as global stock markets tumble, gold is caught in the crossfire of conflicting market forces. The exacerbation of economic recession concerns usually enhances the appeal of gold as a tool for preserving wealth, as panicked investors close out profitable positions to compensate for losses in other areas or meet additional margin requirements, putting pressure on gold to sell off. The short-term outlook for gold is still cautiously optimistic, but volatility is expected to intensify.

On Monday, August 5th, spot gold closed down 1.6% at $2,404.53 per ounce under huge profit-taking pressure, having fallen as much as 3.2% earlier in the day and hitting a low of $2,364.19 per ounce.

Recent global stock market panic selling has created a complex dynamics for gold prices, counterbalancing its traditional safe-haven appeal with widespread liquidation pressure. With global stock markets in turmoil, the Nikkei 225 index in Japan had its worst day since 1987, and gold found itself caught in a clash of conflicting market forces. The unexpected rise in the U.S. unemployment rate to 4.3% in July has sent shockwaves through financial markets and increased concerns about an impending economic recession. This economic uncertainty tends to enhance the appeal of gold as a store of value. However, as investors struggle to cope with fast-changing economic prospects, gold prices remain volatile. Although gold is a safe-haven asset, it still faces selling pressure as panicked investors close out profitable positions to offset losses in other areas or meet margin calls. This phenomenon highlights the interconnectedness of modern financial markets and challenges the traditional role of gold as a crisis hedge. The short-term outlook for gold remains cautiously optimistic, but volatility is expected to intensify. Investors need to closely monitor U.S. economic data, signals from the Federal Reserve, global stock market performance, and geopolitical tensions, especially in the Middle East. These factors may determine whether safe-haven demand or liquidation pressure prevails and therefore influence the performance of gold in the coming weeks and months. As the market faces greater uncertainty, the role of gold as a safe-haven tool and a source of liquidity will be tested. Its performance is likely to be a barometer of overall market risk appetite and economic prospects.

Source: E-huitong

On a technical level, spot gold fell sharply after briefly dropping below the important support level of $2,400 on Monday, but was eventually pulled back to close above that level. This indicates that the overnight slump in gold was a temporary profit-taking adjustment and the gold bulls are not yet ready to give up. The overnight gold was strongly supported by the 50-day moving average, indicating that there is significant buying support at the bottom. At present, the technical indicators on the daily chart do not show a clear direction, and it is expected that short-term gold will continue to maintain a trend of oscillation and consolidation within a limited range, with the volatility range estimated to be between $2,370 and $2,450.

Wang Gang, Bank of China Guangdong Branch

For personal views only, not representative of the views of the organization.