The US has managed to drive a wedge between Russia and India. As a result, de-dollarization and diversification of gold and foreign exchange reserves are obsolete. Meanwhile, XAUUSD quotes are falling. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The gold bubble inflated for a long time and finally burst.
- The precious metal will not return to $4,400 in the coming years.
- Gold ETFs face capital outflows.
- Gold can be purchased on a pullback to $3,500–$3,600.
Monthly Fundamental Forecast for Gold
When the London Bullion Market Association conducted a survey at the beginning of the year, none of the analysts could have imagined that gold would rise above $3,300 per ounce in 2025. In mid-October, half of them were confident that the precious metal would rise to $5,000. Now, LBMA members believe that XAUUSD quotes will return to $3,500. However, this level is still too elevated. Sentiment changed rapidly, but the market is gradually coming to the conclusion that the bubble has burst.
In 2025, gold followed Bitcoin’s trajectory. Both assets were purchased simply because they were rising. Bulls argue that nothing has changed in the market. Indeed, there has been a de-escalation of the trade conflict and an outflow of capital from ETFs, but China and the US are talking about delays, not a long-term deal. Beijing will never give up its control over rare earth elements, as otherwise it will lose the trade war. Washington is not going to throw away its trump card — technology.
Gold ETF Holdings
Source: Bloomberg.
The Federal Reserve is committed to its interest rate cuts; central banks are maintaining their gold purchases; governments are continuing to increase deficits and public debt; and Russia is maintaining its military operations. Currencies and bonds continue to face pressure, and the debasement trade remains a significant concern. Against this backdrop, some may wonder whether there is a compelling reason to abandon portfolio diversification in favor of gold.
However, if we look back, it becomes clear that all these drivers were in place at the beginning of the year. While the XAUUSD backdrop appeared bullish, the speculative factor remained a key factor. The precious metal was rising too rapidly. It was inevitable that the bubble would eventually burst sooner or later.
Bullish Reversals In Gold Market
Source: Bloomberg.
History shows that gold posted such substantial gains only in 1979 and 2011. Following a period of significant growth, a market downturn ensued, resulting in XAUUSD quotes failing to regain their previous record highs for years. This cycle may continue, and it may take decades before gold reaches $4,400 per ounce again.
Furthermore, the decline of the precious metal may not be solely driven by speculators. India’s decision not to purchase Russian oil has resulted in a rift between the two Eastern countries. The world may not be as bipolar as previously thought. As a result, the demand for diversification of gold and foreign exchange reserves among central banks is waning, leading to a significant decline in the XAUUSD rate.
Monthly Trading Plan for XAUUSD
In 2025, gold proved that it should be part of any investment portfolio. However, it still seems too expensive. If China also refuses to buy Russian oil, the chances of ending the armed conflict in Ukraine will increase, and the correction in the XAUUSD will continue. A drop in prices towards $3,600 and $3,500 per ounce will allow investors to shift from short-term sales to long-term purchases.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
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