A strong dollar, soaring treasury yields, and slowing inflation are death warrants for gold. However, any trend needs correction. Could it be the XAUUSD‘s case? Let’s discuss it and make a trading plan.
Weekly fundamental forecast for gold
What microenvironment is the worst for gold?
The rapid growth of the global economy? Not really, as the US dollar falls.
A recession? Investors buy treasuries as a drop in yields is good news for the XAUUSD.
Stagflation? Gold can then be used to hedge against inflation.
Based on its recent bearish movements, gold feels the most vulnerable during a growth recession when the Fed slows GDP growth to below a 1.5-2% trend to fight high inflation. That’s what is happening now, and the precious metal can only fall.
Jerome Powell’s speech at Jackson Hole was a hard blow to the XAUUSD as Fed Chair mentioned that the federal funds rate had been high for a long time. However, NY Fed’s John Williams added oil to the fire by talking about positive real rates. He said the real indicator would rise above zero amid an inflation slowdown to 3% as borrowing costs grew to 3.5%. Thus, high prices would be handled. However, US real treasury yields are a death warrant for gold. A strong US dollar, an inflationary slowdown, and rising borrowing rates create an unfavorable environment for gold.
Gold and the USD charts
Can anything save it? The war in Ukraine? I doubt it: investors have already gotten used to this serious geopolitical risk thinking that the war is a long-term event. The energy crisis and a subsequent economic recession in Europe? I’m not sure. CNG supplies from Asia, full storage, and the impact of the EU’s use of compensatory mechanisms on the gas market may help avoid a downturn. The rising activity of Chinese customers who increased gold imports to 80.1 tons in July, the best dynamics since December 2016? TD Securities believes this factor will hardly hold gold futures back from falling below $1,700 an ounce.
Still, the XAUUSD may fall into a correction. Markets are growing on expectations. Hopes for a 75-point deposit rate hike and forthcoming hawkish comments of Christine Lagarde at the ECB press conference on 8 September may launch the first attack on the USD index. Then, investors will allow for a US inflation slowdown in USD currency quotes. So, the next ten days may be unfavorable to the greenback and support gold.
Weekly trading plan for gold
The question is when exactly a pullback will happen: right after a US labor market report for August or at the beginning of the week ending 9 September? Anyway, think about fixing profits on shortsopened from $1,750 an ounce and then buying the pair in the short term with subsequent selling in the medium term on pullbacks from the levels of $1,730, $1,745, and $1,755.
Price chart of XAUUSD in real time mode
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