Gold is falling again. However, while January’s drop was driven by a burst speculative bubble, this time, fundamentals are on the side of the XAU/USD bears. High interest rates are negative for gold. Let’s discuss it and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Fed is not planning to cut rates.
- Other central banks may raise them.
- ETF storage costs are increasing.
- Selling XAU/USD below 4,730 remains relevant.
Weekly Fundamental Forecast for Gold
“Don’t buy gold, it’s too volatile.” That was JP Morgan’s recommendation, and it proved accurate. The precious metal has posted its largest sell-off since the January drop. If not for the pullback in the US dollar and oil, gold would have fallen even further. Such sharp moves are more typical of speculative assets like Bitcoin, which tend to fall just as quickly as they rise.
However, there is a key difference between the January and March declines in gold. In January, a speculative bubble burst. Now, fundamentals are driving the move. Since the start of the Middle East conflict, the derivatives market has raised the probability that the federal funds rate will stay at 3.75% or higher from 4% to 81%. Japan, the eurozone, and the UK are already moving toward tighter monetary policy. Australia has already done so.
Fed Rate and Gold ETF Holdings
Source: Bloomberg.
High interest rates are clearly negative for a non-yielding asset like gold. Investors shift to bonds instead. Stronger currencies also remove one of gold’s key drivers, the debasement trade. In addition, ETF storage costs are rising, which is pushing capital out of the market. According to VandaTrack, holdings in SPDR Gold Shares have declined for six consecutive days, by an average of $10.5 million per day. This is modest compared to the average daily inflow of $36.8 million in 2025, but it signals cooling demand.
The Fed and other central banks have confirmed investor concerns about stagflation. They slightly lowered GDP forecasts and significantly raised inflation projections. A similar environment emerged at the start of the Ukraine conflict in 2022. Back then, XAU/USD rose briefly before entering a seven-month downtrend.
How long will the Middle East conflict last? The derivatives market has sharply reduced the probability that the conflict will end in March. The most likely scenarios are late April (35%) and late June (67%).
Probability of Conflict Ending in March
Source: Wall Street Journal.
The longer the conflict lasts, the higher the risk of a global slowdown. This is especially true given that four out of five US recessions since the 1970s have been linked to high oil prices. And that creates a very different environment. In such conditions, central banks may eventually return to large-scale monetary stimulus, which would support gold. But first, gold may need to fall further.
Weekly Trading Plan for XAU/USD
The parallels with 2022 appear valid. This allowed traders to open short positions in gold in the $5,200–5,300 range and add to them at $5,050 and $5,000 per ounce. If XAU/USD fails to break above 4,730, this will open the door for further selling.
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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