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One of the most well-known investment edicts is “Do not fight the Fed.” In 2024, gold refrains from following this principle. The precious metal disregards US inflation and monetary policy, continuing to grow steadily. Let’s discuss it and make a trading plan.
Monthly fundamental forecast for gold
In 2024, the intermarket analysis became inefficient. In the first quarter, investors wondered how the S&P 500 index, seen as a global risk appetite barometer, and a safe-haven asset like the US dollar, could rise simultaneously. In the second quarter, it was gold’s turn. In the blink of an eye, the precious metal broke its decades-long link to the greenback and US Treasury yields. Apparently, gold does not care about US inflation or Fed monetary policy. Is gold on the way to a new record of $2,400 an ounce?
For a long time, it was believed that the cost of money and interest rates in the US bond market determined the price of gold. However, the rise in 10-year Treasury yields to their highest level since November, amid accelerating US consumer prices and retail sales, did not frighten XAUUSD bulls. They continued to stick to their stance. Do you remember the gold bugs who insisted that the precious metal’s attractiveness was linked to the growing US national debt? It will reach 99% of GDP in 2024 and 174% of GDP in 2054, causing chaos in monetary policy and financial markets.
Gold goes against both debt and greenback rates. Central banks are buying it regardless of the price as part of a de-dollarization policy in the face of numerous conflicts between Russia and Ukraine, Israel and Iran, the US and China, the West and the East. As BNP Paribas aptly puts it, people are hedging against the new world, which allows the firm to forecast a rise in the precious metal to $4,000 an ounce in the not-too-distant future.
Gold price and US VIX index change
Source: Bloomberg.
Admittedly, investors are indeed hedging against falling US indexes by buying XAUUSD. This is evidenced by the fact that gold and the VIX fear index are in sync.
The same applies to the Forex market. Numerous investors bet that the Fed and other central banks will ease monetary policy, thus undermining confidence in fiat currencies. XAUUSD bulls are benefiting as volatility in the Forex market skyrockets.
Forex volatility change
Source: Bloomberg.
Assuming that central banks will continue to buy gold because their demand is price inelastic and that the conflict in the Middle East will escalate, Goldman Sachs’ forecast of $2,700 an ounce by the end of 2024 and Citigroup’s forecast of $2,875 by the end of 2025 do sound real. If neither US inflation nor the Fed can stop XAUUSD bulls, there is only one thing left to do is to launch futures prices to the Moon.
Monthly trading plan for gold
Only a de-escalation of the conflict in the Middle East and a reduction in the likelihood of the Fed easing in 2024 can cause problems for gold. Traders may open long positions from $2,300 on pullbacks as these events unfold.
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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