The uncertainty surrounding Donald Trump’s policies has led to a significant increase in demand for gold, with prices reaching record highs. However, there is still room for ETF stocks to grow, indicating that the XAUUSD has a substantial upside potential. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Stagflation is an ideal environment for gold.
- Geopolitical factors continue to boost XAUUSD quotes.
- ETF stocks have plenty of room to grow.
- Short trades can be opened if the precious metal plunges below $3,003.
Weekly Fundamental Forecast for Gold
US President Donald Trump has urged the Fed to lower interest rates, contending that declining energy prices will temper inflation. Meanwhile, the commodity index is growing, led by metals, which may spur the PCE index and trigger stagflation, creating a favorable environment for gold.
Commodity Index and US Inflation Rate
Source: Nordea Markets.
Each asset has its Goldilocks scenario. For equities, it is above-trend economic growth against a backdrop of slowing inflation. In contrast, the precious metal sector exhibits the reverse scenario. The ideal environment for precious metals is one of accelerating prices in a cooling economy. This scenario, often referred to as “stagflation,” is the current trajectory of the US economy, hindering the Fed’s ability to raise interest rates in response to high Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) levels.
This trend leads to the stabilization of nominal Treasuries and the decline of real Treasury yields. In such an environment, gold may appear among the top-performing assets. Even a $100 per ounce decline would be met with immediate buying by asset managers who are counting on a stagflationary scenario. For these investors, the primary concern is determining the upper limit of the XAUUSD.
According to the ETF market, the sky is the limit. When gold hit its previous highs, such as in 2020, specialized exchange-traded fund holdings were at extremes near the 1,278-ton mark. Since then, the figure has decreased by 28%, and the precious metal has increased by approximately $1,300 per ounce. The ongoing rally is likely to continue, driven by the sustained demand for ETFs.
The potential cessation of the armed conflict in Ukraine, which could reverse the processes of dedollarization and diversification of gold and foreign exchange reserves, has led to speculation about a potential increase in demand for gold. However, the most significant development to date is Moscow’s agreement to halt attacks on energy infrastructure. Russia’s willingness to pursue negotiations indicates that geopolitical factors continue to favor the precious metal.
Global Trade Policy Uncertainty Index
Source: Bloomberg.
Both stagflation and capital inflows into ETFs, as well as diversification of foreign exchange reserves, are directly related to the uncertainty surrounding Donald Trump’s policies. It would seem that April 2, the date the US President designated as America’s Liberating Day, should have dotted the i’s and crossed the t’s. However, as the date approaches, it becomes evident that this is not the case. Tariffs on automobiles, pharmaceuticals, and semiconductors are delayed, and many countries are granted reprieves.
Weekly Trading Plan for Gold
If tariffs are implemented, the US dollar will be boosted, resulting in a pullback in the XAUUSD. After the price reached the first of two bullish targets of $3,046 and $3,105 per ounce, a pullback occurred. Therefore, if gold breached the support level of $3,003, short trades can be considered in the short term. Conversely, if the quotes exceed the resistance level of $3,037, long positions can be initiated.
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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