The process of de-dollarization and gold purchases by central banks has reached a standstill. It is becoming increasingly evident that Chinese demand is evaporating. The US dollar and Treasury yields are surging. Given the current market conditions, the XAUUSD has expectedly plummeted. Let’s discuss these topics and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Rumors of US budget deficit reduction have dragged gold quotes down.
- Trade wars are looming.
- The XAUUSD has lost its advantages.
- Gold’s growth to the upper boundary of the $2,525–$2,725 range allowed traders to open short trades.
Weekly Fundamental Forecast for Gold
Gold collapsed by 3% after Donald Trump nominated Scott Bessent to lead the US Treasury Department. The hedge fund manager aims to stabilize government finances by boosting economic growth. In the period preceding the presidential election, the XAUUSD was buoyed by expectations of a deceleration in US GDP growth, an expansion of the deficit, and an increase in debt.
The precious metal has exhibited volatile price movements. The week ending November 23rd marked its strongest performance since March 2023, driven by rising geopolitical tensions in Eastern Europe and a shift in the Trump trade narrative. Ukraine’s deployment of Western weapons for long-range strikes against Russia and Moscow’s renewed nuclear rhetoric in response prompted investors to adopt a cautious approach. At the same time, market participants began weighing which of Donald Trump’s plans would materialize and which would not.
Gold’s Weekly Performance
Source: Bloomberg.
Scott Bessent favors negotiations over tariffs. One could think that this should have supported XAUUSD quotes, as trade wars will likely spur US inflation and force the Fed to maintain the federal funds rate at the current level for an extended period. However, it is unclear how the Treasury’s role relates to import duties. The responsibility for setting them lies with Donald Trump, whereas the Treasury Department should concentrate on fiscal stimulus and the national debt.
The Republican’s reluctance to allow anyone to take responsibility for the situation was evident from his posts on social media. The threat of imposing 25% tariffs against Mexico and Canada and 10% duties on Chinese imports frightened XAUUSD bulls.
Notably, hedge funds and other large speculators used gold’s rally in the penultimate week of the autumn to reduce their long positions. As a result, net longs on the precious metal reached their lowest levels since August. When market sentiment is bullish, there is an opportunity to sell.
Speculative Positions on Gold
Source: Bloomberg.
The outlook for gold is becoming increasingly uncertain. The processes of de-dollarization and mass purchases by central banks have stalled, and Chinese demand has fallen due to excessively high prices. Therefore, gold has a limited ability to respond to rising US Treasury yields and a strengthening US dollar. The stabilization of government finances under Scott Bessent removes another key factor influencing market sentiment – the fear that rising deficits and government debt will lead to default.
Weekly Trading Plan for Gold
An acceleration in the PCE Index to 2.6% in October will trigger another sell-off in the XAUUSD. Should high inflation return to the United States, the Fed may pause the current monetary expansion cycle, hurting the precious metal’s price. Short trades formed on the growth to the upper boundary of the medium-term consolidation range of $2,525–$2,725 per ounce can be kept open.
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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