Gold loses its allure? Forecast as of 14.06.2024 | LiteFinance
Lower demand from China, the Fed’s reluctance to cut rates even as inflation cools, and lower geopolitical risks weigh on gold. Let’s talk about these topics and make a trading plan for XAUUSD.
Monthly fundamental forecast for gold
China’s insatiable appetite for gold, the weakness of fiat currencies amid rate cuts by the world’s leading central banks, and reduced geopolitical tensions were the key drivers that allowed gold to reach a record high in 2024 and gain 20% over the past 18 months. Nothing is eternal under the moon, and the bullish trend in XAUUSD is losing steam, leading to price consolidation and increasing the risk of a pullback.
In May, the People’s Bank of China paused its gold purchases after continuously buying the precious metal since October 2022. The pause indirectly suggests that prices are too high for the PBoC, but has Beijing become disillusioned with de-dollarization? If the replenishment of foreign reserves is based on geopolitics and the flight of contingent Eastern countries from the US currency and assets denominated in it, prices should not matter. However, the slowdown in gold purchases from 390,000 ounces in February to 160,000 ounces in March and 60,000 ounces in April, with the refusal to buy the precious metal in May, suggests otherwise.
PBoC’s monthly gold reserves
Source: Bloomberg.
In 2024, gold set new all-time highs in US dollars and other world currencies, indicating that confidence in fiat is eroding amid massive monetary policy easing by the world’s leading central banks. However, the Fed does not follow Switzerland, Sweden, Canada, the eurozone, and Denmark. Despite the slowdown in US consumer and producer prices, the revised FOMC projections show a cut in the federal funds rate from 5.5% to 5.1%, suggesting only one act of monetary expansion. If the divergence in monetary policy between the Fed and other central banks continues, the USD index will rise, creating a headwind for gold. To restore the uptrend in XAUUSD, Washington must finally start cutting the federal funds rate.
Thus, demand from China, which has long created a safety cushion for the precious metal, is cooling down. The Fed has decided to ignore the slowdown in US inflation. The tailwind of geopolitics and related de-dollarization has weakened. As a result, gold has fallen into consolidation in the $2,300-$2,400 per ounce range and risks breaking its lower boundary.
If the greenback remains stable in 2024, it will surely depreciate in 2025-2026. This is evident in the updated FOMC projections, where the number of acts of monetary expansion has been increased from three to four in each of the next two years. The unipolar world is a matter of the past, and the bipolar world will support dedollarization. These factors give reason to hope that the UBS forecasts of $2,800 and Citigroup forecasts of $3,000 per ounce will come true by the end of 2024 or later.
Monthly trading plan for gold
The trading plan for gold should remain the same. After the price breaches support levels of $2,300 and $2,280, short-term sales can be closed, and medium – and long-term purchases can be made.
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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