There were several signs of a bubble in the gold market. These included demand for ETFs that could not keep pace with prices, explosive volatility, and a break in correlations with other assets. As a result, the precious metal collapsed. Let’s discuss this topic and make a trading plan for the XAU/USD.
The article covers the following subjects:
Major Takeaways
- Gold performed like a speculative asset.
- Volatility soared to 18-year highs.
- Wall Street banks remain bullish.
- Short trades on the XAU/USD can be opened on a rebound from 4,930 and 5,060–5,080.
Weekly Fundamental Forecast for Gold
All bubbles burst sooner or later. Gold rose in January thanks to geopolitical factors, but it did so too quickly. It traded like a meme stock, in other words, as a highly speculative asset. The XAU/USD was bought only because prices were rising, and such assets have only one path to follow. They are doomed to plummet. Could the gold market repeat the events of 2011, when the precious metal collapsed and faced a multi-year bear market?
There is some evidence of a bubble in the gold market. ETF holdings rose but did not match the rally in XAU/USD quotes, failing to reach 2020 levels. The precious metal set new records in both nominal and real terms. Unlike silver, which had to trade at $200 per ounce to exceed its all-time high in inflation-adjusted prices, which was set in 1980.
Gold and Bitcoin Volatility
Source: Bloomberg.
The volatility of gold has reached its highest level since the 2008 global economic crisis and has surpassed Bitcoin’s volatility for only the second time in history. In other words, the precious metal has become a riskier asset than the cryptocurrency. Given its status as a safe-haven asset, this was a surprising development.
Finally, for decades, there has been a link between gold and the real yield on Treasuries and the US dollar. Since 2022, this connection has been disrupted. The price of XAU/USD rose amid active purchases by central banks as part of their reserve diversification and de-dollarization efforts. Thus, it was not the weakness of the greenback, but the decline in confidence in it that was behind the rally in gold prices. The same reason triggered debasement trading.
Donald Trump’s choice of Kevin Warsh as the new Fed chair has changed a lot. The markets believe that Warsh will be able to defend the central bank’s independence and will not follow the US administration’s directives, restoring confidence in the US dollar and reversing the “Sell America” trend. The demand for gold and debasement trading in general will decline. As a result, XAU/USD quotes will fall. Moreover, from the perspective of the yield differential between US and G10 bonds, the USD index has plunged too far.
USD Index and US-G10 Government Rate Spread
Source: Nordea.
However, some believe that the upward trend in gold prices is not over. On the eve of Black Friday sales, Deutsche Bank forecast prices rising to $6,000 per ounce. The collapse did not change its view. The forecast for 2026 has been confirmed. JP Morgan is predicting the same level in the second half of the year.
Weekly Trading Plan for XAUUSD
Gold will likely continue to receive support from geopolitical factors, but the short-term strength of the US dollar amid a return of confidence in it and a pause in the Fed’s monetary expansion cycle provides grounds for selling the XAU/USD on a rebound from resistance levels of 4,930 and 5,060–5,080.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
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 broker. 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 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
