Gold’s swan song rally. Forecast as of 29.11.2021

It would seem that the new COVID-19 variant can return the gold its former luster. Indeed, during the worldwide panic and recession, XAU feels confident. However, how long will this last? Let’s discuss this topic and make up a trading plan. 

Monthly gold fundamental forecast

Rumors about the spread of Omicron led to the gold’s swan song, but did not change the balance of power in the XAU market at all. If the death rate and severity of the new COVID-19 variant are limited, why panic? Over the weekend, fears subsided, which allowed investors to return to the good old rate betting strategy. In such conditions, gold feels extremely uncomfortable.

No matter how much traders working with precious metals would like to predict prices based on supply and demand for a physical asset, as it happens with oil, the reality of XAUUSD trading is different. The paper gold market, including, first of all, derivatives, is significantly larger than the physical one. Therefore the value of futures contracts is determined by speculative demand. Gold is sensitive to Treasury yields and the US dollar, so the worst Treasury collapse due to Omicron since March 2020 has allowed the price of gold to soar above $1,815 per ounce. Unfortunately for the bulls, their joy was short-lived.

Dynamics of gold and US Treasury bond yields


Source: Trading Economics.

The financial market panic over news from South Africa is easy to understand. Everyone still remembers the situation with the outbreak of the pandemic, because of which the central banks were forced to save the world economy with the help of colossal monetary stimuli. If history repeats itself and a new virus terrorizes the world’s population, central banks will have to abandon plans to normalize monetary policy. Global debt market rates will fall, and gold will regain its confidence. This is the only way the precious metal can return above $2000 per ounce, but you need to be a real pessimist.

I consider myself one of those for whom the glass is half full. Humanity has the necessary experience in fighting the Beta and Delta variants of COVID-19, so it will be faster to take control of Omicron. In addition, fiscal and monetary stimuli make economies led by the US, look significantly stronger than in early 2020. Labor markets are recovering rapidly, and supply and domestic demand shocks are pushing inflation upward and causing central banks to consider rate hikes.

The Fed is no exception. It is still the leader of the pack. If Jerome Powell wasn’t intimidated by Delta, why should he and his colleagues be afraid of a new variant? Nobody canceled plans to taper the QE. The longer-term nature of high inflation than previously anticipated will only accelerate the decline in asset purchases. This will allow the Fed to raise the federal funds rate as early as the second quarter of 2022. This is terrible news for XAUUSD.

Monthly gold trading plan

It has been profitable to enter gold sales when the price rebounds below $1,850 an ounce. The precious metal tried to resist due to the news about Omicron. However, the truth and the bearish trend cannot be avoided. A price fall below the support at $1,780 will allow to add up to previously formed short trades. The initial targets for the downward movement are the levels of $1745 and $1710.




Price chart of XAUUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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