Gold has emerged as the main beneficiary of the Treasury’s interventions in the debt market. It is less affected by the Treasury’s attempts to manipulate the market to bring down Treasury yields. Bonds and the US dollar are suffering. Let’s discuss this topic and make a trading plan for XAU/USD.
The article covers the following subjects:
Major Takeaways
- Gold is rising alongside Treasury yields.
- Treasury manipulation is supporting the precious metal.
- XAU/USD is facing a new reality.
- Buying gold with targets at $4,830 and $4,990 remains relevant.
Weekly Fundamental Forecast for Gold
Governments have accumulated too much debt for central banks to manage inflation as effectively as they did in the past. Those who understand this are beginning to buy precious metals or cryptocurrencies. These assets depend less on finance ministries’ attempts to manipulate markets. Therefore, pullbacks in XAU/USD should not be feared. They should be viewed as opportunities.
Gold retreated from its local highs amid profit-taking on long positions ahead of Kevin Warsh’s speech in Jackson Hole. Rising Treasury yields, driven by the renewed Brent rally and related concerns about accelerating inflation, as well as a stronger US dollar, also weighed on gold.
Gold and US Dollar Performance
Source: Bloomberg.
At first glance, the precious metal appears to have returned to the old reality. Gold is denominated in the US dollar, so it falls when the USD index rises. It does not generate interest income, so it cannot compete with Treasuries when their yields rise. In fact, the reality has already changed.
Gold prices are now being driven less by rising Treasury yields themselves and more by the factors behind the increase. When the Treasury tries to bring debt-market rates under control, citing only the need to reduce the government’s debt-servicing costs, the market recognizes this as manipulation. Such an approach disregards inflation expectations, the strength of the US economy, and competition from hyperscalers issuing corporate bonds.
As a result, the market is beginning to realize that no matter how hard the Treasury tries to lower yields, it will not succeed. However, markets will experience considerable turbulence amid fears of government intervention. In such conditions, it is better to stay on the sidelines while increasing the share of gold and Bitcoin in portfolios.
Bond Yield Performance
Source: Wall Street Journal.
Debt accumulation is not limited to the US. In other countries, including those in Europe and Japan, bond yields are rising even faster. This is forcing governments to interfere in central bank affairs and could increase demand for decentralized and alternative assets, including cryptocurrencies and gold. Recall how long Japanese Prime Minister Sanae Takaichi opposed the idea of the Bank of Japan tightening monetary policy. Or how Donald Trump has been trying by all means to secure lower interest rates.
Weekly Trading Plan for XAU/USD
In such a situation, there is little the Fed can do. Kevin Warsh’s hawkish tone in Jackson Hole will put only temporary pressure on gold. A decline in XAU/USD followed by a rebound from support at $4,525 and $4,415 would provide an opportunity to open long positions. Conversely, if the Fed chair gives no indication of rate hikes, the precious metal can be bought at market with targets of $4,830 and $4,990 per ounce.
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
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