Gold: time for changes. Forecast as of 18.04.2022

XAUUSD rally with actively growing Treasury yield and a strong US dollar looks nonsense. However, with the current changes in the global economy, this is not surprising. Let’s discuss the topic and make up a trading plan.

Weekly gold fundamental analysis

Periods of changes never passes without negative consequences. The return of the Cold War era and the Iron Curtain and excessively high inflation break stereotypes. Over the past decades, it has been assumed that a strong US dollar and rising treasury yields are creating huge problems for gold that XAU has nothing to go but decline. Today, the USD index is growing strongly, and rates on 10-year bonds are trading near the highest levels since the end of 2018. But the gold, contrary to patterns, feels confident.

Usually, a strengthening national currency and rising bond yields indicate the economy’s strength. If this concerns the world’s leading economy, the US one, this is bad news for XAUUSD. Fortunately for the bulls, expectations drive markets. Investors are not interested in statistics showing that everything is fine in the US. They are trying to predict events. The Fed’s intention to aggressively tighten monetary policy makes the future gloomy. Will the central bank drive the country into recession? If so, then it’s time to buy safe-haven assets. In this field, gold is in no way inferior to the US dollar. 

An important advantage of the precious metal is the deterioration of global risk appetite amid the expected escalation of the armed conflict in Ukraine, the EU joining the embargo on Russian oil and gas, and the tense epidemiological situation in Asia, which is fraught with an economic recession in the eurozone and China. Expectations of a recession in the US due to excessive aggression by the Fed also contribute to the fall of stock indices. As a result, the Nasdaq Composite and BTCUSD are declining, and capital outflows from these markets are pushing XAUUSD higher.

Dynamics of gold and Bitcoin

Source: Trading Economics.

Almost everyone predicts the gold uptrend, but HSBC warns that the precious metal may decline in the second half of the year. The bank cites a de-escalation of geopolitical tensions and/or an inflation slowdown as the main catalysts for a trend reversal. According to HSBC officials, the rally in US Treasury yields looks stable, and the higher the XAUUSD rise, the worse it is for demand, including investment.

However, gold welcomed the slowdown in US core inflation in March. Rumors began to circulate in the market that the Fed might not have to tighten monetary policy as aggressively as currently expected. Thus, a slowdown in consumer price growth will not necessarily lead to a XAUUSD drop. An immediate end to the armed conflict in Ukraine is also not expected.

Weekly gold trading plan

The precious metal will likely continue to remain in a favorable environment, combining inflationary and geopolitical risks. This allows us to predict a breakout of resistance at $1995 and $2010 per ounce by gold bulls. If successful, the rally towards $2040 and $2075 will continue. In case of failure, a consolidation range of $1955-2010 will begin to form.

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.

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