The advantages gold enjoyed yesterday have now turned against it. The Fed is no longer going to cut rates. Instead, it wants to raise them. Investors are returning to the US dollar, while gold ETFs see large outflows. How can gold survive this? Let’s discuss this topic and develop a trading plan for the XAU/USD.
The article covers the following subjects:
Major Takeaways
- The debasement trade is no longer supporting gold.
- The US dollar is regaining its strength.
- Gold prices are dependent on US inflation.
- Long trades can be considered if gold returns above $4,070.
Weekly Fundamental Forecast for Gold
In less than half a year, gold has gone from being the financial markets’ top favorite to a distinct underdog. At the height of its glory, it was buoyed by expectations of a loosening of the Fed’s monetary policy, de-dollarization, diversification of gold and foreign exchange reserves, the debasement trade, and capital inflows into gold ETFs. Now, none of that remains, and the precious metal has fallen below $4,000.
Gold had been buoyed by active bullion purchases by central banks and the start of the Fed’s monetary expansion cycle. However, regulators’ appetite has dried up considerably, and the US dollar has regained the credibility it had lost due to US tariffs. Its growing appeal stems from its status as the currency of a net energy exporter, the AI boom, and easing concerns about the Federal Reserve losing its independence. What kind of de-dollarization could we possibly be talking about?
Gold Price and US Treasury Yield
Source: Bloomberg.
Moreover, the Fed’s hawkish shift under its new chair, Kevin Warsh, was so unexpected that it sent the USD index soaring to yearly highs, pushed Treasury yields higher, and sent XAU/USD quotes plummeting.
At the same time, the debasement trade faded into the background. When central banks are determined to ease monetary policy sharply, their currencies suffer. Investors seek alternatives and find them in gold. The situation is different when massive rate hikes are needed to curb galloping inflation. Under such conditions, the precious metal feels out of place, and investors withdraw their money from gold ETFs. Since late February, ETF holdings have declined by $12 billion—marking the worst four-month performance since 2013.
Gold ETF Holdings
Source: Bloomberg.
When everyone is selling, a great buying opportunity arises. China increased its gold imports in May to 163 tons, the highest level since March 2024. In the first five months of 2026, the figure jumped to 692 tons, up 76% from a year earlier. However, as history shows, when the precious metal moves from West to East, downward trends occur—and vice versa.
What could push the XAU/USD higher? Oddly enough, it could be a slowdown in US inflation. Although gold is generally considered a hedge against inflationary risks, it reacts not to prices themselves but to the Fed’s decisions on bringing those prices back to target. If the rise in US PCE and CPI proves temporary, the central bank will have little reason to raise interest rates. The dollar will weaken, and Treasury yields will decline.
Weekly Trading Plan for XAU/USD
It does not matter how long this will take. Slowing inflation in the US will present a solid buying opportunity on a rebound from support levels of $3,940 and $3,850, or if prices return above $4,070.
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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