XAU/USD Projections: What it means For Gold

XAU/USD Projections: What it means For Gold 

Gold prices and U.S. Treasury yields have been moving in opposite directions. Expectations for an increase in interest rates of the dollar and the United States Treasury Department are hurting gold. The U.S. dollar has negatively impacted the gold recently, but bond gains have changed pace since late April 2021.

The dollar seems to be the main driver for gold prices, and in the current low-interest environment, it accommodates higher gold prices. But unfortunately for gold bulls, this does not reflect underlying fundamentals at the moment. The chart synchronicity illustrates the phenomenon of the dollar is the main driver for gold between the two.

According to economists, the current global financial crisis will likely trigger some form of a rise in gold and other precious metals. This is because it is seen as a backup currency or a replacement currency to the ones that are failing. Regarding gold, we may see a rally in prices because of the recent financial crisis worldwide, particularly in China, Australia, and New Zealand. Fundamentally, we may see a rally in gold as the pandemic spreads.

Gold as a 10-year Upward Trending Market 

Gold prices have held above key levels since two weeks ago. According to the minutes, the FOMC is considering tapering asset purchases before the end of 2021. The FOMC released minutes for their July meeting last Wednesday. The minutes led some to think that the Fed may start raising interest rates again by 2021, increasing borrowing costs and making it more difficult to refinance. After taper talk led to rising Treasury yields in 2013, waning gold prices led to a solid comeback.

In the past, the Fed has been much more aggressive, with markets responding more strongly to the Bank’s meetings. For the most part, the term “tapering” is being incorrectly linked with “tightening.” And since many are thinking about investments in such light, there have been many cases about the Federal Reserve tapering its asset purchases. Still, it doesn’t mean anything for the U.S. interest rates.

Gold Prices are in the Corrective Stage

Gold is regarded as a haven for investors, similar to keeping money in the Bank. However, the U.S. dollar may also be a haven because of the low-interest rate condition and political issues. Therefore, as the interest rate stays low for a long time and the economy improves, it will make gold a more durable investment. It’s just unfortunate that politics and Fed talk will favor the dollar.

Gold is a significant part of the forex market, and traders examine how economic conditions might affect its price. Next week is a good time to think about the impact of economic announcements on the price of gold. Economic data will likely influence the Forex market in the coming week. With only a few high-impact dollar-related announcements, the majority of the calendar has already been taken up by the upcoming Jackson Hole Economic Symposium. This means favorable data, and the spot for gold is likely to fall next week.