Gold traders could fall into the same trap as in 2013. At that time, gold entered a bear market amid tapering the QE and could not rise until 2019. Will history repeat itself? Let us discuss the Forex outlook and make up a gold trading plan.

Quarterly fundamental gold forecast

What should the XAUUSD bulls do when the Fed is about to signal the withdrawal of monetary stimulus? Run! They were taught this very well by the ex-president of the ECB, Ben Bernanke, who, with his message about the end of the QE, launched not only a taper tantrum but also the gold downtrend. History repeats itself. Therefore, my trading idea to sell gold expressed a week and two weeks ago yielded profits. I bet on the same panic among the XAUUSD buyers as it was in 2013.

Of course, there is a lot of difference between current events and what happened 8 years ago. Then, the yield on Treasury bonds was actively growing, and inflation did not manage to reach excessively high levels, as was expected amid huge monetary stimulus. The US economic recovery was much slower, and there was a lot of time left before fulfilling the Fed’s dual mandate. However, the Treasury yields could still start rising. The long-term nature of high inflation is an additional reason to sell gold. 52 Bloomberg experts predict that US PCE will be at 3.9% by the end of 2021 and will slow down to 2.2% in 2022 and 2023. That is, it will continue to be above the target, which should encourage the Fed to start tapering the QE.

Expert forecasts for US key economic indicators

 

Source: Bloomberg

Although the analysts expect the start of the QE tapering process in December and predict the first federal funds rate hike only in 2023, investors have a different view on the monetary normalization. The CME derivatives suggest a 53% chance of the rate hike in December 2022. The dot plot inches towards earlier hikes in the FOMC forecasts, it will be a reason to buy the US dollar and sell the precious metal. In June, only 7 out of 18 Fed officials expected the first rate hike in 2022; however, there may be significantly more in September.

Expert forecasts for Fed’s interest rate

  

Source: Bloomberg

Everything goes to the fact that gold can repeat its trend that occurred in 2011-2015 when the gold price collapsed from its old record high of $1921 per ounce by more than 45%. Concerning the current record highs, it could potentially drop to $1150. I do not think that this is a realistic forecast, but the potential of the downward movement is great. Speculators are now much more neutral to gold than, for example, in 2017.

Dynamics of gold speculative positions

Source: Bloomberg

Quarterly gold trading plan

I believe the shorts entered at $1806 and $1782 are quite promising. Even if traders sell off the US dollar amid Jerome Powell’s hawkish tone at the press conference following the September FOMC meeting, the truth will out. Sooner or later, QE will finish, and the federal funds rate will be raised. The gold trend is clear, so hold down short trades and add up to the sell positions on the corrections up. The medium-term targets are $1715 and $1665.

    

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 LiteForex. 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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