One might expect accelerating US inflation to put gold under heavy pressure. However, after an initial drop, the precious metal rebounded sharply as Treasury yields fell. Let’s discuss this topic and outline a trading plan for XAU/USD.
The article covers the following subjects:
Major Takeaways
- Gold has weathered the CPI data.
- The Fed is in no hurry to raise interest rates.
- Central banks are increasing their gold purchases.
- A breakout above 4,200 would be a signal to add to XAU/USD long positions.
Weekly Fundamental Forecast for Gold
Every cloud has a silver lining. Gold was heading steadily toward $4,000 per ounce as the probability of a Fed rate hike jumped from 22% to 50% following strong US inflation data. However, a sell-off in technology stocks pushed Treasury yields lower and reduced the odds of a rate hike, bringing XAU/USD back to life.
Gold Prices and US Treasury Yields
Source: Bloomberg
Then came more pressure: the good news did not end there. Despite accelerating PPI inflation, Kevin Warsh did nothing during his speech at the IMF meeting in Bangkok to challenge investors’ expectations that the Fed would pause its rate hikes in October. The probability of an October rate hike plunged to 15%, allowing gold to approach the upper boundary of its short-term consolidation range of $4,070–$4,200 per ounce.
Lower odds of monetary tightening, falling Treasury yields, a weaker US dollar, and the sell-off in technology stocks are supporting gold. Troy Asset Management expects the precious metal to reach record highs within 12–18 months. The firm points to rapidly rising government debt and the large amounts of money the Fed may print when the US economy enters another recession. Unlike money, gold cannot simply be printed.
Aon Investments expects XAU/USD to rally to record highs within two years. The company notes that when Washington starts using the dollar as a weapon, it should come as no surprise that people turn away from the US currency. What could they use instead?
Gold Purchases by the People’s Bank of China
Source: Kitco.
Gold is also receiving support from preliminary World Gold Council estimates showing that central bank gold purchases rose to 63 tonnes in September, the highest level since November 2024. Meanwhile, the People’s Bank of China bought gold for the 23rd consecutive month, bringing its holdings to 2,410 tonnes. As a result, gold’s share of the PBoC’s foreign exchange reserves rose to 9%.
In my view, gold offers a classic trading lesson: keep losses small and let profits run. It is an ideal asset for a long-term strategy. Current conditions are unfavorable for XAU/USD because of the strong US dollar and high Treasury yields. However, investors who see a crisis as an opportunity can buy a strategically important asset at an attractive price.
Weekly Trading Plan for XAU/USD
I believe investors will have another chance, as it is still too early to expect a strong gold rally. The storm is clearly not over, although positive signs are emerging. Long positions in XAU/USD opened when the price fell toward the lower boundary of the $4,070–$4,170 trading range, outlined in the previous article, can be built up if the price breaks firmly above the resistance level of 4,200.
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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