The fight against the crowd can end badly, but if the crowd is scared, there is a chance. The Bank of England scared bond sellers around the world, and gold took advantage of this. Let’s discuss it and make a trading plan.
Weekly gold fundamental forecast
The Fed has already punished the financial markets twice for their intention to go against it. When the Bank of England stepped in, investors backed off. One billion pounds was enough to scare bond sellers around the world. As a result, the yield on 10-year Treasury bonds failed to consolidate above the psychological level of 4%. Gold has benefited the most. Having almost reached the target of $1,600 per ounce mentioned in the previous article, the precious metal rose sharply.
XAUUSD is highly sensitive to the dynamics of the US dollar and treasury rates. As a result, the greenback’s rally to 20-year highs and the rise in 10-year bond yields to their highest since 2010 seriously affected gold’s position. Specialized ETF holdings have fallen to their lowest levels since May 2020, while bullish speculative gold rates have fallen to their lowest since November 2018.
Dynamics of gold and US dollar
Source: Bloomberg
When there are too many bears in the market, it can easily reverse. As soon as something happens that can weaken the USD and contribute to a decrease in treasury bond yields, gold sellers immediately exit short trades and take profits. Such an event was the renewal of the £1 QE program by the Bank of England. Andrew Bailey and his colleagues are ready to increase the figure to $65 billion.
The external background remains unfavorable for the precious metal. The drop in applications for unemployment benefits, rising underlying orders for durable goods and strong personal consumption data suggest that the US economy is still strong and ready to endure the Fed’s aggressive monetary tightening. The Fed wants to cool the labor market, but it remains red-hot. All that’s left is to raise the stakes. No one is surprised when such FOMC hawks as James Bullard and Loretta Mester talk about their growth to 5%. However, when dovish San Francisco Fed President Mary Daly states this, it is worth considering a little more deeply.
In my opinion, gold outpaces the market. It gives wishful thinking, just like the US stock market in the first half of August and September. Also, the oversold factor, including excessive bearish rates in the futures market and the outflow of capital from specialized ETFs, has its effect.
Weekly gold trading plan
If the Fed raises the federal funds rate to 5%, the yield on 10-year US Treasuries will also reach this figure. Now there is a correction in the Treasury and gold market. It allows traders to enter gold shorts when the price rebounds from key resistances near $1677, $1692 and $1712 per ounce.
Price chart of XAUUSD in real time mode
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