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Gold hit a new record as the FOMC’s December forecasts remained unchanged and amid Jerome Powell’s dovish rhetoric. Still, the Fed may be wrong about the term and pace of monetary easing. Let’s discuss it and make a trading plan.
Weekly fundamental forecast for gold
To maintain interest in yourself, you must always surprise and not seem to be an open book. Gold is always ready to do that. In 2023, it grew 14%, refuting its status as an inflation-hedging asset. In 2024, it made us question its safe-haven asset status. The precious metal rose above $2,200 an ounce for the first time in history when the S&P 500 set its 19th record since the beginning of the year.
The XAUUSD rallies on China’s and central banks’ high demand amid de-dollarization alongside expectations of policy easing. One of the major vulnerable spots for gold is money outflows from ETFs, reaching $7.7 billion from January to mid-March. Bitcoin exchange-traded funds attracted $10.6 billion over the same period, allowing rumors that cryptocurrency poached money.
However, the situation has recently changed. Gold ETF reserves are growing while Bitcoin ETFs see outflows. Is demand for the yellow metal no longer on a losing streak?
Gold ETF reserves
Source: Bloomberg.
Dynamics of Bitcoin ETF reserves
Source: Bloomberg.
We should have expected this a long time ago. As gold does not yield interest, it cannot compete with US treasuries when their yields rise. However, treasury rates usually fall during Fed policy easing. Thus, monetary expansions tend to create tailwinds for the XAUUSD and, even more so, synchronized monetary expansions.
Rate cuts by the world’s leading central banks undermine the purchasing power of fiat currencies. Investors look for an alternative and find it in gold. The US dollar also benefits from synchronized monetary policies, and the rally of the USD index is bad news for the precious metal. Also, whatever the Fed may say, its policy is driven by data. Statistics indicate disinflationary processes in the American economy have temporarily stopped.
US inflation trends
Source: Financial Times.
The FOMC’s updated outlook for the fed funds rate suggests that if just one FOMC member changes his or her opinion, the consensus estimate will change from three to two expansion acts.
Thus, gold risks failing to maintain its gained positions amid the USD’s strengthening and the Fed’s more “hawkish” rhetoric despite massive policy easing by the world’s leading central banks and the associated problems of fiat currencies.
Weekly trading plan for gold
Gold’s failure to hold to support at $2,159 and $2,148 an ounce will be a foundation for correction and selling. Otherwise, the asset will consolidate in the $2,150-$2,200 range.
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.
