While the gold market forged a significant higher high thrust yesterday it fell back sharply from that high with a setback of $15 into the close and that gave off the impression of a blow off top. However April gold this morning has returned to the vicinity of the Wednesday high and appears to remain in a bullish posture.
Clearly the breakdown in the dollar index below the psychological 95.00 level yesterday leaves the currency influence on gold today positive but it should be noted that the dollar has "bounced" from the overnight lower low which could discourage fresh sellers of the greenback. Certainly the gold and silver markets are cheered by the revelation that the US Fed is on hold for the time being, but the focus of the trade will now turn to the US/Chinese trade talks.
In fact the trade talks take on added importance to gold after reports from China overnight indicated their 2018 gold consumption increased by 5.7% on a year-over-year perspective. According to Chinese sources they were the world's biggest gold consumer for the sixth straight year with a consumption of 736 tons. As in other areas Chinese environmental rules have restricted gold production by closing mines and thereby reducing output in many provinces.
In another non-currency related supportive development the Chinese also indicated they posted a "multi-decade high" in central bank gold buying. While Chinese jewelry demand held steady, investment in gold bars and coins expanded its pre-existing growth rate. Adding into the positive gold news from China the World Gold Council yesterday released figures showing central banks bought the largest amount of gold in 50 years!
In fact it was reported that central banks bought 15% of the gold offered for sale last year. The banks indicated financial turmoil prompted the shift in reserve holdings, with the banks also attempting to diversify. Apparently the Russian central bank was the largest buyer with a net purchase of 274 tons with Turkey raising their holdings by 51.5 tons, Kazakhstan adding 50 tons and India buying roughly 40 tons. However in a surprising development, Gold Fields Mineral Services forecast gold prices this year to average below $1,300 because of weak jewelry demand.
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