- Russia’s central banks, the 6th biggest holder of gold in the world, to stop buying gold in local markets
- Gold price has moved lower in the past few weeks despite the worsening risk sentiment
- A double-top chart pattern may take gold price below to $1,545
Gold price is trading slightly higher today after recording a 2.8% drop yesterday following Russia’s central bank announcement that it has halted bullion purchases amid the coronavirus outbreak.
Fundamental analysis: Russia pulls the plug
Russia’s central bank announced it will stop buying gold from local markets to allow space for gold exporters to sell commodities in international markets.
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“Further decisions on gold purchases will depend on how the situation develops,” the Russian central bank said.
The central bank has been one of the biggest buyers of gold recently. It is estimated that Russia has a stockpile of 2279.2 ton of gold stored, which makes it the 6th biggest holder in the world.
There is no official confirmation as to why Russia has stopped buying gold, however, analysts believe that the country’s high reliance on oil has reduced the purchasing power of Russia amid low oil prices.
Gold price has fallen in the past few weeks despite the huge selloff in equities. Commodity analysts have struggled to explain why gold price has moved lower despite a massive blow to the global economy dealt by COVID-19.
“Global sentiment remains shaky despite central banks and governments standing together in the fight against COVID-19, with fears revolving around a global recession should send investors rushing towards gold, especially if cracks start showing in the largest economy in the world,” FXTM analyst Lukman Otunuga added.
Analysts from TDS believe that gold price will start moving higher in the near future.
“In the immediate term, gold prices appear to have run ahead of real rates, but looking forward, as the dust settles on COVID’s impact, we expect gold to perform smartly in the next phase of this narrative”.
Technical analysis: Sellers eye $1,545
Following the announcement from the Russian central bank, gold price decreased by nearly $40, falling below the $1,600 mark. Yesterday’s fall also means the gold is now again trading below the $1,595 mark, which is an important horizontal resistance/support for the pair.
More importantly, the sellers are still trying to complete the double top chart pattern, which is defined as a bearish reversal pattern. For the pattern to be completed, gold price will have to hit the $1,545 level, which translates to a drop by around 3% from the current market price.
Gold price fell by $40 yesterday following an announcement from the Russian central bank to suspend the buying of the metal, most likely due to a crash in oil prices and a worsening outlook for the global economy. As a result, gold sellers are targeting $1,545 to complete the double top pattern, a bearish reversal chart formation.