Gold in 2021 breaks stereotypes. Its price is falling in response to accelerating inflation, declining real Treasury yields and growing risks of a global economy’s slowdown. Let us discuss the Forex outlook and make up a gold trading plan

Fundamental gold price forecast for today

Unlike the US dollar, which decided to collapse without waiting for the Fed’s decision, gold managed to stay within the trading range of $1793-1813 per ounce. The nerves of gold traders turned out to be much stronger than those of their counterparts from the foreign exchange market, but it is all due to the chaos that surrounds gold in 2021. Gold continues to break existing stereotypes, investors simply don’t know what to do and prefer not to ask for trouble.

It is clearly stated in any textbook on fundamental analysis that the gold serves as a hedging tool against inflation, precious metal’s price usually rises against the background of falling real yields of US Treasuries. The same textbooks say that the growth of uncertainty and the threat of the global economy’s slowdown, as a rule, help XAUUSD bulls. What is the current situation? US consumer prices have accelerated to a multi-year high of 5.4%, but gold is falling. US debt rates have hit historic lows in real terms, but gold is falling. Investors fear that the global economy will shift from reflation to stagflation, a combination of high inflation and slow GDP expansion, but gold is falling. Paradox?

Dynamics of the Treasuries real yield

Source: Bloomberg.

Typically, falling Treasury yields are forcing pension funds, insurance companies and other institutional investors to look for alternatives in the form of equity securities or gold. In 2021, the beforementioned institutions are giving preference to stock indices. Even with the recent decline, the stock market resembles a jet that took off and is coming out of an air pocket, but is still struggling to find a suitable cruising altitude. The S&P 500 falls are immediately bought out. How can gold, which violates the principles of fundamental analysis, compete with it?

In my opinion, gold’s dependence on inflation is fundamentally wrong. For XAUUSD, it is not inflation itself that matters, but what the Fed officials think about its prospects. Prior to the June FOMC meeting, gold felt very confident amid the Fed’s patience with accelerating consumer prices. Since then, the gold price has plunged by 7% as the Fed’s view has changed. Will it change again, or will the FOMC follow its own way, which does not exclude an increase in the federal funds rate in 2022? The fate of gold will depend on the answer to this question.

I do not think that because of the Delta, the US will begin to impose new restrictions. The recovery of the US economy is reaching a peak, which implies the normalization of monetary policy, which, in turn, will support the US dollar. In Jackson Hole in August, Jerome Powell is likely to announce the tapering of QE, while the return of the labor market to pre-pandemic levels and high inflation will create preconditions for raising rates in 2022.

Gold trading plan for today

These conditions will continue to put pressure on gold in the medium term. In the short term, the breakout of the upper border of the trading range of $1793-1813 per ounce may become the reason for the opening of long trades. On the contrary, gold price decline below the support at $1,793 serves as a sell signal.

   

 

 

Price chart of XAUUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily…



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