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Gold can rise as a safe-haven asset, as it did in the spring of 2022 and 2023. It can also rise as a risk asset, as seen in the summer of 2020 and winter of 2023. In March 2024, the precious metal plays both trump cards. Let’s discuss it and make a trading plan for XAUUSD.
Weekly fundamental forecast for gold
The external background for gold remains favorable, but even the most dedicated bulls did not expect such a rapid rise. XAU has been growing for eight trading sessions in a row, adding 6.7% to its value. This is half the growth recorded in 2023. Then, active purchases by central banks and expectations of the Fed’s monetary weakening allowed the XAUUSD bulls to close in the green zone for the first time in the last three years.
Before the current super growth, gold tried four times to consolidate above $2,050 per ounce. In the summer of 2020, it set a new record thanks to remarkably cheap liquidity from the Fed. The Central Bank was saving the US economy from a recession provoked by the pandemic, and a large amount of cheap money ended up in the precious metals market. In the spring of 2022, the rapid rally of XAUUSD was associated with the armed conflict in Ukraine, and in the spring of 2023, it was associated with the US banking crisis. Both events shook financial markets and made investors flee to safe havens. In December 2023, gold bet on a Fed’s dovish reversal and an aggressive cut in the Federal funds rate. However, this did not happen.
Gold and Bitcoin dynamics
Source: Bloomberg.
Thus, gold can act as a risky asset, as can be seen in the first and fourth examples and is confirmed by the record of XAUUSD and Bitcoin. However, gold has retained its traditional status as a reliable asset, as evidenced by the second and third examples.
What is happening now is a unique case. On the one hand, the Fed intends to reduce the federal funds rate even with a stable US economy. Jerome Powell said in his speech to Congress that this moment is near. Perhaps the monetary easing in 2024 will not proceed as quickly as buyers of risky assets would like. However, in 2025, the Fed will have no choice but to drop borrowing costs to 3%.
On the other hand, the process of de-dollarization and a crisis of confidence in the Chinese economy continues, which are forcing central banks to be more active in purchasing precious metals. For example, the People’s Bank of China has been conducting similar operations for the 16th month in a row and has increased its gold reserves to 2,257 tons.
Dynamics of gold purchases by central banks
Source: Kitco.
Swiss exports to China, usually a reliable indicator of China’s domestic gold demand, nearly tripled in January. The reason was investors seeking refuge amid turmoil in financial markets and in the real estate sector of Asia’s largest economy. All this points to a hidden rally. At the same time, Citi raises its forecast to $2,200 per ounce in three months and to $2,300 in 9-12 months.
Weekly trading plan for gold
The potential for gold’s upward movement has not been exhausted. Use gold downside corrections to $2135 and $2120 to add up to long trades entered at $2000.
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.
