.jpg)
Everyone was surprised when the precious metal was growing on the back of a strong US dollar and rising US Treasury yields. Old correlations have returned, creating tailwinds HowUSD. Let’s discuss this topic and make a trading plan.
Quarterly fundamental forecast for gold
Gold, despite lacking the trump cards of corporate earnings growth and artificial intelligence technology that has driven… Standard & Poor’s 500The 15% rise this year has its own unique drivers. The loss of confidence in fiat currencies, resulting from massive monetary easing by the world’s leading central banks, is one of these factors. It was prompted by a rate cut by the Swiss Central Bank and the Bank of England’s upcoming move in August HowUSD gathering.
As a general rule, gold and the US dollar do not rise simultaneously; The precious metal is priced in US currency, so it should fall as the US dollar index rises. The current economic cycle is an exception. The dollar appears strong even as the US economy slows and inflation slows. The main reason is the Fed’s intention to keep interest rates unchanged while other central banks are cutting interest rates.
Performance of gold and the US dollar
Source: Trade Economics.
However, the federal funds rate cannot remain at 5.5% for long. It could freeze the economy and increase the Treasury’s debt servicing costs. Sooner or later, monetary expansion is inevitable. Moreover, the matter may accelerate if Donald Trump returns to power in the United States. It needs to stimulate economic activity and weaken the US dollar to attract foreign buyers of US Treasury bonds. The dollar risks becoming an outsider on Forex in 2025, so gold is far from exhausting its potential.
Its growth in parallel with US Treasury yields could be linked to the de-dollarization. According to 62% of central banks surveyed by the World Gold Council, the share of the dollar in foreign exchange reserves will decline within 5 years. In 2023, there were 55% of such respondents, in 2022 – 42%. Conversely, 29% of participants said they were ready to buy gold in the next 12 months.
Central banks’ gold reserves change expectations
Source: Kitco.
When central banks sell the US currency and the Treasuries denominated in it, the latter’s yields rise. Something similar happened in 2024. Not surprisingly, HowUSD Citations were going up.
Performance of gold and US Treasuries
Source: Bloomberg.
The decline in interest rates in the US debt market prevented the precious metal from correcting. A pullback looked very likely when the People’s Bank of China (PBoC) stopped buying gold in May after 18 months of continuous buying. Rumors began to spread in the market about weak demand in Asia. In fact, with the yuan weakening by 13% against the US dollar over the past three years, the market capitalization of the Chinese stock market falling by $1 trillion since 2021, and the real estate sector facing serious problems, China has no alternative to the precious metal.
Quarterly trading plan for gold
HowUSD The bulls will likely continue to play to trump cards such as declining purchasing power of fiat currencies, demonetization of the dollar, rising demand in China, and active purchases by central banks. Gold may consolidate in the $2,300-$2,400 per ounce range for a few months due to the Fed’s unwillingness to cut interest rates, but the long-term outlook remains bullish. Recommendation is to buy.
XAUUSD price chart in real time mode
The content of this article reflects the opinion of the author 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 providing investment advice for the purposes of Directive 2004/39/EC.
