The market situation is constantly changing, and to survive, traders must change with them because if you follow outdated principles, you can lose money. What is the situation in the gold market? Let’s discuss it and make a trading plan.
Weekly fundamental forecast for gold
Only the stupid don’t change their minds. The comments of Standard Chartered officials look like they have nothing to do with reality. They said gold is being hampered by higher inflation, growing recession fears, and a flight to quality. On the other hand, problems for XAU are created by a sharp increase in rates, a strong dollar, and seasonally weak demand. Gold should consolidate but not lose 17% of value compared to the March highs, not show a 15-day ETF outflow, the longest since March 2021, and not close in the red zone for five weeks in a row. However, the fact that the precious metal managed to consolidate the price of $1,700 per ounce is helping its buyers.
Dynamics of XAU and gold ETF holdings
Source: Bloomberg.
Gold does not save from inflation. This principle has not passed the test of time. This was relevant in the 1970s when consumer prices were actively rising, while the abandoning of the gold standard of the Bretton Woods monetary system led to a strong XAU rally. Then gold rose during low inflation and fell during high inflation. Like now, when the US CPI has exceeded 9%. Commerzbank’s position is that gold has lost its reputation as an inflation hedge and a safe haven during a crisis. However, does this have anything to do with reality?
If you had the choice to hold gold bars and treasuries that yield 3%, which would you choose? For me, gold is an asset that follows the monetary policy of the Fed, and its stance is now aggressive. The Fed is ready to provoke a recession to bring PCE back to the 2% target. The result of this policy is a booming Treasury yield and a stronger than ever US dollar. The XAUUSD correlation has reached its strongest level since September. This fact allows Well Fargo to claim that the main reason for the XAUUSD collapse is the greenback and not the real rates on US debt.
Dynamics of the XAUUSD correlation
Source: Bloomberg.
UBS Group lowered its $1,800 and $1,700/oz gold forecasts for late September and December to $1,600. Citigroup experts also predict this level at some point in time in 2022.
Weekly trading plan for gold
Prior to the FOMC meeting on July 26-27, XAUUSD’s fall may resume as investors still do not know whether the federal funds rate will be increased by 75 or 100 bps? Strong US jobs report and data on retail sales convince that the US economy can withstand a giant move by the Fed. In turn, the central bank is determined to actively fight inflation. A possible increase in borrowing costs up to 2.75% will strengthen the US dollar and exacerbate the problems of gold. Continue to sell XAU on corrections to $1725 and $1755, or when the price declines below support at $1705/oz.
Price chart of XAUUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
