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Gold is growing despite everything: a strong dollar, growing bond yields, ETF money outflows, and weaker demand in India. What pushes the XAUUSD quotes up? Let’s discuss it and make a trading plan.
Weekly fundamental forecast for gold
To predict the future, look back at the past. Historically established correlations allow us to correctly predict the moves of various assets. But gold’s rally bewilders both its enemies and advocates: the yellow metal feels too good in 2024 despite all headwinds. Who could think it would outdo the S&P 500, which rarely happens? And that’s not the only paradox of the XAUUSD.
S&P 500 and gold trends in 2024
Source: Wall Street Journal.
S&P 500 and gold trends in 1995-2024
Source: Wall Street Journal.
Gold is trading at a discount in India compared to global prices, signaling weaker demand amid excessively high prices. In the West, money flowing from ETFs suggests that the precious metal is more often sold than bought. Speculative positioning doesn’t look excessive. Traditional inverse correlations between the XAUUSD and treasury yields/the USD index were broken. What’s going on?
Gold is traded in US dollars, so markets mourn the dollar when gold prices rise. In 2024, the greenback is the best G10 performer, but the yellow metal has grown 11% since the beginning of the year, after a 13% rise in 2023. And that’s amid a strong US economy when we know that the XAUUSD bulls historically feel better when the US economy is weak.
Gold and the USD trends
Source: Trading Economics.
Geopolitics and the associated de-dollarization are the only reasonable explanations for gold’s skyrocketing. The military conflict in Ukraine has led to the largest sanctions in history. The world is divided into West and East, and the threat of world war forces central banks led by China and Russia to reallocate foreign reserves by getting rid of US dollars and treasury bonds and replacing them with gold.
That explains why bond rates and the XAUUSD are growing simultaneously and why the bulls in gold aren’t concerned about the risk of 10-year bond yields topping 4.5%.
The conflict in the Middle East also adds fuel to the fire. Rumors of Iran’s possible involvement have already pushed Brent above $90 a barrel, and that’s not the limit. Investors seek refuge in gold and flee the dollar, allowing the precious metal to hit $2,300 an ounce.
However, the safe haven status and de-dollarization are not the only reasons behind the XAUUSD’s rally. They speak more and more often in the market of institutional trading algorithms that open long positions when the gold price hits new highs, thus fuelling bullish momentum. If that’s true, gold’s collapse will be as acute as its rally.
Weekly trading plan for gold
Gold’s eventual collapse below $2,268 an ounce can trigger snowballing profit locking in long trades and selling. It can happen amid strong US jobs or inflation data. Conversely, the rise of the precious metal above $2,300 will be a foundation for building up longs.
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.
