Gold has posted gains lately, but the pressure has not eased. The Fed's tightening cycle is only getting started, while higher Brent prices add to the strain. Let's discuss this topic and outline a trading plan for XAU/USD.
The article covers the following subjects:
Major Takeaways
- Gold is trying to stabilize.
- The Fed has outlined when it plans to raise rates.
- Geopolitical risks and oil prices are capping the XAUUSD rally.
- Consider long trades in the $4,070–$4,170 range.
Weekly Fundamental Forecast for Gold
Gold is trying to hold up despite strong headwinds. Treasury yields are at their highest since 2002, the US dollar is rising fast, and Brent crude is holding above $100 per barrel. With this much pressure on XAU/USD, it is surprising that gold has not collapsed. Central banks are the reason.
Bundesbank President Joachim Nagel says market conditions are pushing central banks to diversify their reserves in favor of gold. Higher bond yields make bonds more attractive, but the risks of holding debt are rising at the same time. These risks need to be hedged, and gold appears to be the best way to do it. This explains why China has been buying the metal for 23 months in a row. In September, its reserves grew by 740,000 ounces.
Gold Price vs. Treasury Yields
Source: Bloomberg.
Treasuries are an alternative to gold, so when their yields rise, the XAU/USD pair usually falls. After a successful auction of 30-year Treasury bonds, money flowed back into the secondary debt market. This pushed yields lower and helped gold recover.
Whether gold can extend its rally depends on the Fed and on geopolitics. The Fed has all but decided when to raise rates, but the outlook for the US-Iran conflict is still uncertain. Brent pulled back after Donald Trump promised not to resume strikes on Iran until after the primaries. In practice, though, this gives Tehran a free hand, and Iran is already backed into a corner. If tensions in the Middle East escalate further and oil prices start climbing again, XAU/USD buyers will lose momentum.
Gold and Oil Price Trends
Source: Bloomberg.
Gold's difficult period is far from over, and conditions could still get worse. The key event next week will be the release of US inflation data. If September inflation comes in sharply higher, the Fed will be more likely to tighten monetary policy this month. That would send Treasury yields and the dollar higher again, and gold would likely take the biggest hit.
At this point, we can only acknowledge how resilient XAUUSD has been under pressure and hope the losing streak ends soon, giving way to a run of gains. Historically, gold has a hard time when the Fed starts tightening, but it tends to bounce back later. Patience is the only option for now.
Weekly Trading Plan for Gold
The $4,070–$4,170 range appears to be a good entry point for medium-term long trades. If the price breaks below this zone, consider long trades at $3,830–$3,930. Another option is to buy the dip right after the release of the September US inflation data.
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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. 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 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
