Despite an unfavorable environment, gold remains stable. When the USD strengthens, and treasury yields grow, the XAUUSD quotes decline. But not this time. Why? Let’s discuss it and make a trading plan.
Monthly fundamental forecast for gold
Gold remains amazingly stable despite the bond yield rally to the highest in more than ten years and the USD index’s best weekly performance since 2005. That’s as amazing as the US economic strength amid the Fed’s aggressive tightening. What will happen when the wind becomes favorable if gold successfully handles headwinds?
The rally of bond rates and the USD’s consolidation harm the XAUUSD as non-interest-generating assets cannot normally compete with bonds when treasury yields rise. Moreover, gold is often called “anti-dollar” because of its inverse correlation with the USD index.
USD and bond yields evolution
However, some countries’ negative attitudes to the US currency and de-dollarisation provide a kind of safety pool to gold despite the USD index rally. For example, the XAUUSD bears now think twice before an attack as China has increased its gold reserves for ten months in a row, having acquired nine metric tons in August and 217 metric tons since November. Its reserves now amount to 2,165 tons.
JP Morgan says that central bank demand for gold is of a structural nature. A new record was set in 2022, and a slowdown in the second quarter is likely temporary. De-dollarisation and Beijing’s endeavor to back the yuan in global settlements support the XAUUSD bulls. Speculative interest in gold is also recovering. Commerzbank notes a drastic increase of bullish sentiment and capital inflow worth $5.2 billion in gold ETFs.
Thus, central banks have created a safety pool for gold. Still, the precious metal won’t remain stable if the Fed resumes monetary restrictions, which will happen only if US inflation starts rising. We cannot ignore the latter scenario amid the latest growth of commodity prices.
US inflation and Commodity Index trends
Source: Nordea Markets.
So, there’s a key question that will determine gold trends. Which will be faster: the worsening of US macro stats amid the Fed’s aggressive monetary restrictions, after which the market will recall a recession and a dovish turn; or, the growth of inflation amid strong economic data that will make the subject of the fed funds rate growth to 5.75% relevant again.
Monthly trading plan for gold
Investors will hardly get the answer based on one or two US jobs and inflation reports. The central bank pays attention to trends, so gold will likely consolidate in the range of $1,900-2,000 an ounce in the medium term. At the same time, a breakout of resistance at $1,931 can be a reason to go long.
Price chart of XAUUSD in real time mode
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