Gold has won the battle but is losing the war. Will the bears resume the XAUUSD downtrend? How will gold react to the release of US inflation data? Let’s discuss it and make a trading plan.
Weekly gold fundamental forecast
Gold was the most active of all the assets that went against the Fed in October. The rally of US stock indices in anticipation of the Fed’s dovish reversal looked too modest, while the rise of the precious metal from $1610 to $1730 helped the bulls. However, the price of XAUUSD collapsed as quickly as it rose.
In August, Jerome Powell’s speech at Jackson Hole was the trigger for the sale of assets struggling with the Fed. In September, it was US inflation data. In October, the US jobs report was enough. Employment growth by 263 thousand and the fall in unemployment to 3.5% proves that the US economy is resistant to monetary tightening.
According to the derivatives market, the federal funds rate will reach 4.7%, which, against the backdrop of slowing inflation, reduces the real yield of Treasury bonds and XAUUSD.
Dynamics of gold and US Treasury yields
Source: Trading Economics.
Monetary policy operates with a time lag. It takes 9-18 months for the economy to experience a massive rate hike. Therefore, Morgan Stanley predicts a recession in the US in the second and third quarters of 2023. It will cause the S&P 500 to decline by another 20%.
Another confirmation that the gold rally above $1,700 per ounce is a correction, and not a downtrend’s breakout, is the overflow of the precious metal from West to East. ETF stocks are declining, interest in gold bullions and coins is fading, while low prices are stimulating demand in the jewelry industry in India and China. These factors indicate a bearish trend. At some point, this process will stop, and ETF stocks will begin to grow. Then expect the trend breakout.
The release of US CPI data for September could affect the short-term dynamics of XAUUSD. The fall of the precious metal before this important event indicates the implementation of the reverse market principle “sell on rumors, buy on facts”.
Weekly gold trading plan
Gold could rise if core inflation accelerates to the 6.5% expected by Bloomberg experts. However, the downward trend will likely recover in the future, as the Fed will continue tightening monetary policy. Thus, enter sales when the price rebounds from $1677 or cannot rise above $1670 an ounce.
On the contrary, an unexpected slowdown of the underlying indicator will create preconditions for the return of the XAUUSD price above $1,677 per ounce. In this case, enter purchases.
Finally, when core inflation accelerates above 6.5%, sell gold on breakout of support at $1660 and $1650.
Price chart of XAUUSD in real time mode
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