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After a period of accumulation that lasted about three years, gold began to grow rapidly and reached a new historical maximum of $2,195 per troy ounce. What reasons caused the current growth? Will the current gold rise be the start of a long-term trend or is it temporary?What levels can XAUUSD reach in the long and short term? Technical and fundamental analysis will provide answers to these questions.
The article covers the following subjects:
Highlights and major points
- The current gold price (XAUUSD) for today, 18.03.2024, is 2 160.19 US dollars.
- Analysts predict an increase in the XAU price to $2,500 in the main scenario. According to the alternative scenario, it will be below $1805.
- This week, it is reasonable to open long trades when gold reaches the zone of $2060 – $2100. Targets: $2195; $2300. Stop loss: $1970.
Assessing gold fundamentals
The Fed’s monetary policy is one of the key elements influencing the price of gold. The US dollar occupies a dominant position in the global financial system and is the generally accepted equivalent of value.
In the early 1970s, the United States unilaterally abandoned the peg of the dollar to gold. Since then, the value of gold in dollars has increased more than 70 times. In 1971, gold cost $35 per troy ounce. Today its price is $2 160.19. The upcoming meeting of the US Federal Reserve can negatively affect the XAUUSD quotes, but it will not be able to break the uptrend.
Meetings of the second and third division rated central banks will influence the price of gold quoted in local currencies. The desire of regulators to buy gold in exchange for dollar reserves provides the precious metal with stable demand and maintains its rate around $1900–2000 per troy ounce.
For example, according to the World Gold Council (WGC), in 2023, central banks significantly increased gold purchases, adding 1082 and 1037 tons of gold to their reserves, respectively.
Sources: ICE, Metals Focus, Refinitiv GFMS, World Gold Council
Previously, central banks did not have a significant impact on gold price quotes and preferred to buy it when it was declining. However, US policies, as well as sanctions against Russia (one of the main gold producers) forced central banks to reconsider their attitude towards XAUUSD. Now regulators are widely using the precious metal instead of traditional debt obligations of countries issuing reserve currencies.
It is worth noting that in the current situation the structure of demand for gold has changed significantly. Previously, price momentum was provided by American and European investors in gold ETFs and COMEX futures traders. Now, according to the US Commodity Futures Commission and the World Gold Council, investors began to buy the precious metal several weeks after the start of intensive growth.
Moreover, according to a survey of private managers from the US and UK, only 6% of respondents hold their clients’ assets in gold. This allows banks to attract additional funds, which will lead to further growth of the XAUUSD rate.
Another reason for the rise in gold prices is limited supply. The introduction of environmental standards and ratings has limited the flow of new investment into the gold mining sector. This has led to gold production stagnating at 3,500–3,600 tonnes since 2016, which cannot meet increased demand (pictured below).
Sources: ICE, Metals Focus, Refinitiv GFMS, World Gold Council
The G7 countries also imposed sanctions against Russia, which produces gold in the amount of 330–350 tons per year (second only to China with a production volume of 380–400 tons).
How to use fundamental data in trading and investing?
According to fundamental analysis, gold is now trading in an uptrend, with prospects for price growth from six months to three years. Traders give priority to long trades. However, the market situation can change at any time, so it is important for traders to follow the rules of money and risk management.
Gold XAUUSD Technical analysis
The weekly timeframe (W1), showing the prospects for gold from six months to three years, indicates an upward breakout by the XAUUSD price. This is confirmed by trading volumes above average, as well as by the MACD indicator.
According to the rules of technical analysis, the first target of the movement will be equal to the width of the range. Thus, gold is expected to rise by $400 to $2,500. A drop in quotes below $1,805 will cancel this scenario. At the same time, the probability of growth is now estimated at 70%.
If the gold rate falls below $1980 and returns to the $1900-2000 range, the XAUUSD will trade in consolidation. The probability of this scenario is 25%.
A decrease in quotes below $1800 is a signal of the start of a downtrend. However, the probability of such a scenario (over an investment horizon of six months to three years) is estimated at only 5%.
Let’s look at the daily chart (D1) showing the gold price outlook for 1-3 months. An upward trend is expected. The price is highly likely to rise.
The chart shows alternating impulses and corrections. The first target at $2190 has already been met, which caused XAUUSD to correct in the direction of $2160. The next growth target is $2,300. The gold rate can reach this level within 1-3 months.
Trading plan for the current week
In the current trading week from March 18 to March 24, XAUUSD will be very volatile due to the upcoming meetings of central banks, primarily the meeting of the US Federal Open Market Committee. At the same time, fundamental and technical analysis suggest continued gold growth.
In this regard, let’s draw up the following trading plan:
- Traders need to wait for the gold price to decline to the $2060 – $2100. In this zone, open a long trade with the first target at $2195. At this level it is possible to close half of trades. The second target is level $2300. Stop loss should be placed around $1970. In this case, the risk for an open trade should not exceed 1%.
- If the correction in $2060 – $2100 does not begin, then wait for a new impulse growth before entering purchases.
- Investors can continue to add up to XAUUSD trades with a target of $2,500 and above, until the gold falls below $1,800. In this case, purchases should be temporarily stopped.
Summary
After three years of consolidation, gold’s upward breakout suggests a continuation of the trend. This is due to current political and economic factors. The uptrend may continue for at least three years, which is confirmed by the current dynamics of XAUUSD. It is reasonable to sell gold only to take profits or when there are clear bearish signals. Be careful and follow the money management rules.
WARNING: The information on these pages includes forward-looking statements that come with risks and uncertainties. The markets and instruments described here are only for informational purposes and should not be seen as advice to buy or sell these assets. It’s important to conduct your own detailed research before making any investment decisions. The author cannot guarantee the accuracy, error-free, or timeliness of this information. Investing in the open market carries significant risks, including the potential loss of all or part of your investment and emotional distress. You are solely responsible for all risks, losses, and costs associated with investing, including the total loss of principal. The author is not liable for any information accessed through links provided on this page. No personalized investment recommendations are offered here. The author does not claim the information is accurate, complete, or suitable. The author will not be responsible for any errors, omissions, or any losses, injuries, or damages resulting from this information and its use. The author is not a certified investment advisor, and this content is not intended as investment advice. All performance data reflects past performance and is shown on a total return basis. Past performance does not predict future results, and current performance may vary from what is shown.
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Price chart of XAUUSD in real time mode
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