Can gold continue to grow? Forecast as of 08.11.2021

Gold price returned above $1800 per ounce, taking advantage of the Fed’s slowness and the Bank of England’s reluctance to raise the interest rate. Will XAU continue to rise? Is its growth potential limited? Let’s discuss this topic and make up a trading plan.

Monthly gold fundamental forecast

Over the past several months, interest rate-sensitive assets, including gold and the Japanese yen, have been worrying about the early start of monetary policy normalization. The return of the economy and financial markets to normal requires higher borrowing costs, forcing investors to get rid of non-income assets. Nevertheless, the refusal of the Bank of England to raise the interest rate on November 4, seemed to cheer up the precious metal.

Despite the actively growing profitability of the global debt market in October, the strong position of the US dollar, rumors about the Fed’s abandonment of QE and the rapid growth of Bitcoin, gold price remained stable. The XAUUSD bulls sincerely believed that central banks would postpone their plans to raise rates, and as soon as such signals came from the Fed and the Bank of England, they immediately began to strengthen. The example of the BoE, which abandoned the idea of tightening monetary policy, is particularly indicative. As a result, the yield on 2-year British bonds collapsed in half, pulling down yields worldwide, including Treasuries. This helped the gold price return above $1,800 an ounce.

It was British and Canadian securities that were the main initiators of the yield rally in the fall. At the same time, despite the refusal of the Bank of England to raise the interest rate, the chances of monetary restriction in the UK remain. According to the head of BoE, Andrew Bailey, only a lack of information forced the central bank officials to postpone the decision to increase borrowing costs. Chief economist, Huw Pill, claims that inflation in the UK will be higher than in the eurozone and the US.

Investors are concerned about whether the monetary restriction will result in stagflation or even a recession. However, the situation won’t improve until central banks take any action. I am sure the 40-year downtrend in treasury yields has finished; the US economy needs higher interest rates, at least, based on real potential GDP.

Dynamics of the real potential GDP and US debt rates

Source: Nordea Markets.

In the current situation, the further rise in the inflation rate and the recovery of labor markets will make central banks normalize monetary policies. The assets sensitive to changes in US yields, including the yen and gold, could temporarily strengthen amid regulators’ deviation from the plans for raising interest rates. However, it will be like a dead cat bounce, a short-lived recovery from a prolonged bearish market.

Monthly gold trading plan

I suppose the current gold rise is just a short-lived correction. The Bank of England will not raise the interest rate in November, but it will do it later. Yes, the Fed is unwilling to tighten monetary policy before the labor market fully recovers, but the October jobs report suggests the US employment is about to reach its pre-pandemic levels soon. Gold is up in the short term, but the uptrend will hardly resume. It is still relevant to sell the gold on the price rise to $1815 – 1820, $1835, and $1850 per ounce.

      

 

 

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 LiteForex. 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.

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