What is the true reason for the XAUUSD‘s 16% rally from the autumn bottom? Is there really a mystery shopper in the market? Has the macroeconomic background changed? Let’s discuss this topic and make up a trading plan.
Monthly gold fundamental forecast
Gold marked a 2.5% rally in the first week of January. At the same time, the unchanging macroeconomics makes banks and investment companies think about the reasons for what happened. Drawing attention to the reduced interest of hedge funds and asset managers in gold, TD Securities concluded that some mystery shopper was involved. Without it, gold would be trading at $150 an ounce lower.
At the beginning of the year, the precious metal ignored the USD dynamics. XAU rate rose when the USD index rose, and the US currency declined. The link between gold and TIPS yield returns was broken back in 2022, while ETF stocks are very far from the maximum levels, and traders are in no hurry to add up to long trades.
Dynamics of gold and TIPS yield
Source: Bloomberg.
At the same time, central banks are increasing XAU purchases at an unprecedented rate. Even the People’s Bank of China bought gold for the second month in a row to replenish reserves (32 tons in November and 30 tons in December). TD Securities believes that the mystery shopper was from China. The company notes that Chinese speculators are becoming more bullish.
Dynamics of XAUUSD and gold aggregate net length
Source: Bloomberg.
The desire of TD Securities to bring back a popular in the early 2010s Puppeteer theme to the gold market is explained by the intention to put a brave face on a bad situation. In fact, the macroeconomic background changed dramatically at the turn of the third and fourth quarters, which provoked a 16% XAUUSD rally, which continues to this day.
First, expectations of a recession will increase demand for such a safe-haven asset as bonds, which reduces their yield and strengthens gold. Secondly, the strong US dollar era has come to an end. The Fed is ending its monetary tightening cycle, the US economy is weakening, and interest in safe currencies is fading as global risk appetite rises. The accumulation of speculative longs in such a situation is a matter of time, so the gold uptrend looks stable.
At the same time, XAUUSD bulls will have to withstand the pressure of Jerome Powell and December US inflation data. The Fed chairman is not pleased with the improvement in financial conditions, which makes it difficult for the central bank to fight the highest prices in a decade. Expect the Fed to be hawkish, which could bring back investor interest in the US dollar for a while. Gold will be one of the biggest losers.
Monthly XAUUSD trading plan
However, when monetary policy is determined by incoming data and not by the Fed’s stance, it is inflation that will finally clarify the situation. Its slowdown will contribute to gold growth. Thus, it would be reasonable to enter long trades towards $1915 and $1940 per ounce when the gold rate decreases.
Price chart of XAUUSD in real time mode
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