After a rapid rise in February and a fall in the first half of March, the gold price has calmed down somewhat and consolidated. What are the reasons for this, and what will happen to XAU price in the future? Let’s discuss the topic and make a business plan.
Weekly gold fundamental analysis
The Fed’s most aggressive monetary constraint in decades is forcing hedge funds to go out long, while geopolitical tensions in Eastern Europe contribute to the inflow of capital into specialized ETFs and allow the XAUUSD bulls to fight. As a result, the precious metal moved into a narrow trading range of $ 1880-1960 per ounce. For how long? Does gold have the strength to get out of it?
The armed conflict in Ukraine has become the main driver of the second rise in gold over $ 2,000 an ounce in the last two years. ETF bulls continue to add up to holdings for ten consecutive weeks. As a result, the indicator reached a 13-month high of 3289 tonnes, an increase of 95 tonnes over the last month. At the same time, Morgan Stanley continues to believe that geopolitical tensions and high inflation will allow gold to return above the psychological level of $ 2000 in the second quarter. However, in the second half of the year, prices will still fall against the background of a massive tightening of monetary policy by the world’s major central banks.
Asset dynamics in gold-supported ETFs
The number of XAUUSD bears grow by leaps and bounds. According to the Business Futures Commission, retailers reduced net lengths by 9% in the week ended March 22nd. Commerzbank officials note that the bulls hit a 6-month bottom. The explanation for the declining interest of hedge funds in the precious metal can be found in both physical and paper gold markets.
High prices reduce demand. China’s net gold imports through Hong Kong fell by 13.7% in February, the lowest level in nearly a year. At the same time, the yields of the treasuries are close to 3-year highs. It is worth noting that the US dollar is feeling confident in the Fed’s intentions to tighten monetary policy, including a possible increase in the federal exchange rate by 50 basis points at the same time in May. In addition, the central bank plans to quickly bring lending rates to neutral levels, which is also bad news for XAUUSD bulls.
On the other hand, an aggressive monetary tightening by the Fed could trigger a recession, which usually serves as a positive factor for safe-haven assets, including gold. In addition, the muted reaction of the US dollar to the distinctive sharp rhetoric of the FOMC members shows that most of the positive news is already priced in the USD quotes. The dollar needs new drivers to grow further, but they are not yet expected. The same is true for treasury yields, which could halt in April after accumulating in March.
Weekly gold business plan
Thus, I see no preconditions for gold to go beyond the consolidation range of $ 1880-1960 per ounce. I suggest buying gold in decline and selling it on the rise. This strategy has already worked well. The bulls ’inability to keep the precious metal above $ 1950 allowed us to enter short trades.
XAUUSD price chart in real-time mode
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