Gold’s Price Plunge Exaggerate: A Buying Opportunity?


Despite Friday’s dramatic 3.5% drop in gold prices, driven by algorithmic trading on headline news, the market’s fundamentals remain unchanged. The People’s Bank of China paused its gold purchases, sparking unwarranted fears among investors. Meanwhile, a seemingly strong U.S. employment report further pressured prices, though deeper analysis revealed weaknesses in the labor market. Analysts suggest this selloff presents strategic buying opportunities, as the underlying factors supporting gold—stubborn inflation, geopolitical uncertainty, and central bank diversification—continue to hold firm.

If you ever needed proof that algorithmic trading has dominated the marketplace, look no further than today’s price action in the gold market.

The gold market took two significant hits Friday as black boxes traded only on the headlines instead of looking at the details in the broader landscape. In a single day, gold prices dropped more than 3.5%, the biggest intra-day selloff since 2020. Looking ahead, analysts have said that with this renewed selling pressure gold prices could eventually test support at $2,200 an ounce.

Despite this dramatic selloff, the market’s fundamentals have not changed. But let’s look at the two events that spooked investors. 

Gold took its first hit during the Asian trading session. Data from the People’s Bank of China revealed that the central bank did not buy any gold last month.

Looking at the reaction in the gold market, investors now believe that China’s central bank will never buy another ounce of gold again. China has been buying gold for the last 18 months; its ridiculous to expect that this trend would continue without some sort of pause. 

Stubborn inflation, geopolitical uncertainty, and diversification away from the U.S. dollar are reasons why central banks have voraciously bought gold and will continue to build their reserve. Even if gold purchases become more staggered, central bank demand will remain a solid pillar of support for the foreseeable future.

“While China has positively contributed to the level of annual demand from the official sector, we are still confident that central banks as a whole will remain net buyers. Buying has been broad-based, with several other central banks continuing to accumulate gold, even as the gold price has increased in recent months. As such, while central bank demand for 2024 may not reach the levels seen in 2022 or 2023, we still believe that it will remain healthy for the remainder of the year,” Krishan Gopaul, Senior Analyst at the World Gold Council, in an exclusive comment to Kitco News.

Gold took its second hit at the start of the North American session after employment data showed that the U.S. economy created 272,000 jobs, significantly beating expectations. At the same time wages increased 0.4%, also beating expectations. 

At first glance, it was a blockbuster employment report showing a healthy labor market. However, as markets digest the full report, economists have been busy pointing out that the data is not as robust as the headlines suggest.

While the headline was better than expected, the household survey shows a dramatic decline fo 408,000 jobs. At the same time, the report also showed a significant drop in full-time jobs and a rise in part-time employment.

People having to work more than one job to make ends meet is not a sign of a healthy economy.

After talking to several analysts, the consensus is that investors should let the algorithms make their trades, and as they push the price lower, investors and traders can look for strategic buying opportunities. 
But that it enough from me. 

This article originally appeared on Kitco News

Print Friendly, PDF & Email

sign up for the newsletter

By signing up, you agree to our Privacy Policy and Terms of Use, and agree to receive content that may sometimes include advertisements. You may opt out at any time.

7 steps - Lead Gen