The XAUUSD rally may be approaching a point where it might be considered a bubble founded on the same old drivers and momentum trading. How far can this rally extend? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Geopolitical factors and trade wars support gold prices.
- The precious metal posted its best quarter since 1986.
- The XAUUSD rally is based on momentum trading.
- Consider selling gold if the quotes fail to settle above $3,115.
Weekly Fundamental Forecast for Gold
It appears that momentum trading is pushing the gold price higher. The rise in its value appears to be driven by increased demand. This increase in purchasing may, in turn, be influenced by the rising value of gold. A similar trend was observed in the Bitcoin market between October and December 2024. From January to March, there was a notable influx of investors interested in the precious metal market. Notably, gold posted its best quarterly performance since 1986 during this period. Capital flight from the US equity market is contributing to this trend.
Gold Price and S&P 500 Index
Source: Wall Street Journal.
The XAUUSD rally has been attributed to a number of factors, including the escalation of trade and geopolitical tensions, which have been influenced by the uncertainty surrounding Donald Trump’s policies. Notably, the world witnessed more intense geopolitical tensions than we observe today, and the risks of a trade war have been a topic of discussion since the US presidential election.
Meanwhile, recession risks in the US are increasing, as the only certainty appears to be Donald Trump’s readiness to raise tariffs to levels not seen since the 1940s. Goldman Sachs paints a stagflationary scenario, cutting its forecast for US GDP in 2025 to 1% and raising its inflation estimate to 3.5%. The cooling US economy may present a lucrative tailwind for the XAUUSD. However, the rally is being driven by momentum strategies.
For instance, gold ETFs have seen a 6% capital inflow in 2025, following a period of outflows over the previous four years. As prices rise, the valuations of specialized exchange-traded fund stocks increase, leading to more gold buying. A similar picture could be observed in central banks’ gold reserves.
Capital Inflows into Gold ETFs
Source: Wall Street Journal.
It seems that geopolitical tensions and concerns about trade wars are creating a Goldilocks scenario for the precious metal. However, the gold rally is also driven by capital flows from the stock and crypto markets, as well as momentum trading. Gold is relocating from Europe to North America, which appears to be in the opposite direction of equity investments.
The forecasts of major banks have contributed to an increase in the number of gold bulls. Goldman Sachs has revised its estimate, raising it from $3,100 to $3,300 per ounce by the end of the year. Morgan Stanley anticipates that the precious metal may reach $3,300 or even $3,400. One could draw parallels with Bitcoin’s forecasts of $100,000 per coin, which were once considered exorbitant.
Weekly Trading Plan for Gold
History shows that purchasing an asset because its price is rising may carry a certain level of risk. The bubble will eventually burst, and a lot of optimistic investors may face the harsh reality. Gold has reached the second of the two previously set targets of $3,046 and $3,105 per ounce. However, if it fails to break through the resistance level of $3,135, it may see a shift in market sentiment. If investors turn to the S&P 500 index, one may consider selling the precious metal below $3,115.
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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