What will the world be like after the COVID-19? What will the US-China trade relations be like under Joe Biden? The answers to these questions will determine the XAUUSD trend. Let us discuss gold prospects and make up a trading plan.
Fundamental gold forecast for a year
In 2020, the main factor of forex pricing is pandemic. The victory over the pandemic in 2021 by means of vaccination could take the world back to multi-polarity. There again would be such important factors as economic expansion, monetary policy, and international trade. The first sign of higher importance of factors other than the coronavirus has become the gold’s reaction to Donald Trump’s ban on American companies’ purchases of certain Chinese securities. The ban resulted in sell-offs in the Chinese corporate debt market and sent the Treasury yield down, supporting the gold price rise to $1900 per ounce.
The improvement in the US-China trade relations is the second crucial factor for investors following the victory over the COVID-19. Although the Chinese see Joe Biden as a better partner than wild and unpredictable Trump, the US policy towards China could remain tough. Biden has already announced that the US allies need to negotiate to establish rules for international trade to counter China’s growing influence.
Supposing that the vaccines bring the world to normal life, the world economy is recovering and the US-China trade relations don’t deteriorate at least (at best, Joe Biden could cancel the tariffs imposed by Trump), gold should be between a rock and a hard place. On the one hand, the growth of the global PMI and the rally of Treasury yields will press down the XAUUSD. On the other hand, the Treasury rates affect gold prices, which you could see on November 9 when gold had the worst daily crash since August. Goldman Sachs has lowered the gold price forecast for 2021 from $1950 to $1825 per ounce, as analysts expect the recovery of global GDP.
Dynamics of PMI and Treasury yields
Source: Nordea Markets
However, the above scenario could suggest the US dollar drop, which is an obvious bullish factor for the XAUUSD. Citigroup believes that the USD should be 20% down next year. The company suggests the situation of the 2000s should repeat next year. In the 2000s, Chine joined the WTO, which accelerated international trade, strengthened the euro, and weakened the greenback. The median-forecast of Bloomberg experts suggests the USD should be 3% down in 2021. The worst yearly drop of the USD index was 18.5% in 1985.
Dynamics of Gold and USD index
Source: Trading Economics
Gold trading plan for a year
I believe that this scenario doesn’t consider such a factor as the difference between the US GDP and global growth. If the US economy recovers soon, the dollar could stabilize. In addition to the Treasury yield growth, the dollar strengthening will suggest selling gold towards $1800 and $1770. Otherwise, if the euro-area economy performs better, the XAUUSD will tend to consolidate in the range of 1800-1900. The escalation of the US-China trade war will hinder global economic expansion, strengthening the dollar and sending the gold price down to $1700-$1750.
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