• Gold imports into China, its largest market, fell 38% in April.
• The data may indicate that Chinese demand is weakening.
• XAU/USD is likely forming a bear flag continuation pattern.

Gold (XAU/USD) is trading lower on Tuesday, hitting $2,340, even as sentiment turned negative (usually positive for gold) on concerns that demand in China – gold’s largest market – may weaken.

Gold weakens after falling imports to China

Hong Kong’s gold imports to China fell 38% in April from the previous month, according to data released Monday by Hong Kong’s Department of Census and Statistics.

Net imports to the world’s top gold consumer were 34.6 tonnes in April, down from 55.8 tonnes in March, the data showed.

Gold stored at Hong Kong International Airport accounts for the lion’s share of gold imported into mainland China. Goods are transported from one country to another mainly by air, so they are stored at Hong Kong airport before the final leg of the journey across the border to China.

The figures mark a change from the high consumption recorded in the first quarter, which showed a 5.94% escalate compared to the previous year, according to data from the China Gold Association (CGA). According to “China Daily”, 308.91 tons of this precious metal were used in the first three months of the year.

Technical Analysis: Gold may form a bear flag

The price of gold is consolidating in a rectangular pattern (red shaded area) after falling sharply from the dizzying highs reached last week. The selloff pushed XAU/USD below the major trendline, ushering in a recent, more bearish technical environment for the precious metal.

As a result, gold is likely currently in a short-term downtrend, favoring low positions over long positions.

XAU/USD 4-hour chart

The precious metal has dropped from its low on May 24, but looks vulnerable to a breakdown. The pullback could be a continuation price pattern for Bear Flag. If so, it would represent a significant drop – to at least $2,300 – if it breaks below the May 24 lows of $2,325.

The decisive break of the main trend line last week indicates a probable continuation of declines. The conservative continuation target is USD 2,303 (Fibonacci extrapolation of 0.618 for the downward movement before the breakout – from USD 2,435 to USD 2,355).

A more bearish move could cause gold to fall as low as $2,272 (100% extrapolation of the move before the break). This last level is also support from the lower peak on May 3. A break below the lows at $2,325 would confirm further deterioration of these targets.

The Moving Average Convergence Divergence (MACD) indicator crossed its signal line on Monday, and the pullback continued to build in line with the indicator’s signal. However, it weakened again on Tuesday and is now pressing against the base of the rectangle.

The precious metal’s medium- and long-term trends remain bullish, suggesting recovery risks remain high, but price action does not support the resumption hypothesis.

A decisive break above the trend line, currently at $2,375, would be evidence of recovery and a reversal of the short-term downtrend.

A definite breakout would be one accompanied by a long green bullish candle or three green candles in a row.