While gold recovered its losses in 2022 thanks to central banks’ bullion purchases, that tailwind has faded. Market sentiment has shifted, and demand for diversification has weakened. Only a de-escalation of tensions can support the precious metal. Let’s discuss this topic and outline a trading plan.
The article covers the following subjects:
Major Takeaways
- Gold has lost its safety net.
- Gold is moving from the West to the East.
- The backdrop for XAU/USD is unfavorable.
- If the gold price falls below $3,950, short trades can be considered.
Weekly Fundamental Forecast for Gold
While gold lost a quarter of its value in just three weeks at the start of the Middle East conflict in March, the renewed fighting in July merely left the precious metal consolidating between $3,950 and $4,160 per ounce. Every pullback toward the lower boundary of the range attracts buying from major market participants, while failed breakouts above the upper boundary reflect a lack of fundamental support.
Gold is both a speculative asset and a cyclical commodity. Lower prices tend to stimulate demand, so it is not surprising that China’s gold imports climbed to 173 metric tons in June, their highest level since March 2024. In fact, when bullion shifts from Western investment vehicles, such as ETFs, to Asian consumers, the XAU/USD pair tends to trade in a downtrend.
China’s Gold Imports
Source: Bloomberg.
The broader macroeconomic backdrop also remains unfavorable. Brent crude has climbed above $100 per barrel, 10-year US Treasury yields have reached their highest level since January 2025, and the US dollar has strengthened against other major currencies as investors increasingly expect the Fed to tighten monetary policy. Futures markets now price in a 55% chance of two rate hikes, with the first potentially coming as early as July.
A similar situation emerged in 2022 after the conflict in Ukraine began, driving inflation into double digits and prompting the Fed to tighten monetary policy at its fastest pace in four decades. Nevertheless, gold recovered as central banks stepped up their bullion purchases.
Central Banks’ Gold Purchases
Source: Wall Street Journal.
Gold demand weakened significantly in 2026. With no major asset freezes and the divide between East and West no longer as pronounced, central banks have had less reason to diversify their reserves into gold. Instead, the precious metal has increasingly become a source of liquidity. To support their currencies, both Gulf oil producers and commodity-importing countries have been selling bullion, either directly or through intermediaries. Turkey, for example, cut its gold reserves by 81 metric tons in the first half of the year, equivalent to roughly $10.6 billion.
The XAU/USD pair has lost an important source of support. Moreover, any correction in the S&P 500 index could force investors to sell gold to meet margin requirements on their positions.
Weekly Trading Plan for XAU/USD
However, as the conflict in the Middle East intensifies, the growing political and economic costs for the US, together with Brent’s rally above $100 per barrel, are increasing the likelihood of de-escalation. Until then, consider selling gold if it breaks below $3,950 and buying it if it exceeds $4,160 per ounce.
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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