Gold price forecast amid relentless Turkish Central Bank selling

Gold price has remained in a tight range in the past two months as American investors and the Turkish central bank continued selling. It was trading at $4,676 on Friday, down substantially from the year-to-date high of $5,602.

Turkish Central Bank is dumping gold

One of the top reasons why the gold price is falling is that the Turkish Central Bank has turned from being a buyer into a seller.

Data shows that the bank has sold 120 tons of gold worth over $20 billion in the past three weeks. It sold 70 tons of gold last week.

These sales are meant to stabilize the Turkish lira and obtain US dollars to offset the ongoing energy surge amid the ongoing Iran war that has pushed crude oil prices up by double digits in the past few weeks.

GLD ETF has had outflows

The ongoing gold price weakness is mostly because American investors have continued to dump their holdings in the past few months.

Data compiled by ETF.com shows that the popular SPDR Gold ETF (GLD) has shed over $2.8 billion this year. Similarly, the iShares Gold Trust (IAU) has shed over $2.6 billion this year.

American investors have dumped their gold holdings because of profit-taking after it surged to a record high in January.

The selling also happened as investors sold the Iran war news since it was already priced in before it started. It is common for an asset to erase gains when a major event happens.

A good example of this is the recent NVIDIA stock retreat, which happened after the company held its GTC event and published strong financial results.

The war has also reduced the possibility that the Federal Reserve will deliver more interest rate cuts as inflation has jumped. WTI crude oil has jumped to $112, while shipping costs, fertilizer, and transport costs have soared. 

As a result, analysts expect that the US inflation will jump to over 4% this year, a move that will prevent the Federal Reserve from cutting interest rates. 

Indeed, data shows that short-term government bond yields have continued rising, with the 2-year and 10-year moving to 3.8% and 4.2%, respectively. Gold price often does well when the Fed is cutting interest rates.

Gold price forecast: Technical analysis 

Gold chart | Source: TradingView

The daily timeframe chart shows that gold price dropped to a low of $4,090 on May 23 to a high of $4,675 this week. It has moved above the key resistance level at $4,400, its lowest swing in February.

The Average Directional Index (ADX) has jumped from the year-to-date low of 11.7 to 31, while the two lines of the Percentage Price Oscillator (PPO) have made a bullish crossover.

The Relative Strength Index (RSI) has jumped from the oversold level of 30 to the current 45. 

Therefore, gold will likely continue rising in the coming weeks as the market absorbs the ongoing Turkish central bank sales. This view will be confirmed if it moves above the 50-day and 100-day Exponential Moving Averages.

If this happens, the next key target to watch will be the psychological level at $5,000. A move above that level will point to more gains, potentially to the all-time high of $5,602.