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XAU/USD forecast for 01.06.2020

June 1, 2020

June 1, 2020

Gold: the pandemic starts and ends, but the liquidity remainsDmitri Demidenko

The way the Fed follows the experience of other central banks will

determine the gold future trend

I am entertained with the headlines of the articles devoted to the gold market. Something like “Gold is down amid the reopening of the US economy and the rally of stock indexes”, “Gold price is rising as investors are concerned that Trump will take serious measures against China as the retaliation for Hong Kong”. The US didn’t impose tough sanctions against China, but the [XAU/USD][1] is still rising. Why? They say this is because of the riots in the US after the killing of an African American by the police. But the US stocks are still growing! Yes, because investors ignore those protests. I remember an old joke about two analysts speaking:

 Do you understand what is happening in the market?

- Yes, let me explain…

- No, thanks! I can explain this myself, but I still can’t understand…

In my opinion, such controversial headlines of the tabloids, like there were two or three days ago, occur because their authors do not understand what is really going on. I will try to express my own opinion, which, however, may not be the universal truth.

The price of any asset forms also because of the actions of big traders that are based on an investment idea. In most cases, this is an idea suggested by fundamental factors. Besides, the patterns in economic studies are as often as the technical patterns. The global economy is in the recession, so we can base on the gold trends that were typical during the former downturns. At those times, the market favored the idea that the inflation rise, spurred by the huge monetary stimulus, would push the gold future up above $2000 per once. The time was going, the gold price was growing and reached its all-time high at $1920 in 2011. However, the CPI and the PCE didn’t accelerate. Big traders realized that they had been wrong and started exiting longs, which broke the [XAU/USD][1] bull trend.

History is not only repeated but also rhymed. The current monetary stimulus is greater than the previous one, however, banks and hedge funds are unwilling to repeat the old mistake, so they started exiting longs in late May. This is because inflation is not rising. Moreover, the demand can be weak for a long time due to the pandemic, which is clear from the dynamics of 10-year inflation expectations.

Expected annual inflation in the USA and Europe

![LiteForex: XAU/USD forecast for 01.06.2020][2]

Source: Wall Street Journal

As a result, the gold price rebounded from the top of the middle-term consolidation range of $1635-$1775 outlined in the [previous gold analytics][3].

If the price hadn’t remained above $1700, the correction could have continued. However, the Fed’s officials started talking about the yield curve control. According to t he president of the Federal Reserve Bank of New York John Williams, this idea is being considered, and the experience of other countries is being analyzed. If the central bank keeps the bond market rates at a fixed level, the inflation rate should start rising (the pandemic starts and ends, but the liquidity remains). This will send down the real Treasury yield, and the gold price should be rising to at least $1830 per ounce. The US Treasuries are the main rival for gold, and a drop in Treasury yields encourages investors to increase the share of gold in the portfolios.

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Price chart of XAUUSD in real time mode

![Gold: the pandemic starts and ends, but the liquidity remains][6]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. 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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  1. my.liteforex.com/trading/chart?symbol=XAUUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/expected-cpi-01-06-20.jpg?w=30&s=64b1f7baa09a75267ab5bd3ac28d61ca
  3. www.liteforex.com/blog/analysts-opinions/gold-never-say-never/
  4. my.liteforex.com/?category=analysts-opinions&slug=gold-the-pandemic-starts-and-ends-but-the-liquidity-remains&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
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  6. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-gold-01-06-20.jpg?q=75&w=1000&s=88f82e19d36c8e8347597b2aa1f64d1f