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XAU/USD forecast for 15.06.2020

June 15, 2020

June 15, 2020

Gold requires financial repressionDmitri Demidenko

Gold traders rely on the Fed

The world’s leaders compared their fight with the coronavirus with the world war. This war won’t end after COVID-19 is defeated, as the governments will have to repay huge debts. In the US alone the public debt will be up from 109% to 131% of the GDP in 2020. According to Goldman Sachs research, the debt-to-GDP ratio is developed economies will hit the levels recorded in the 1940s. At that time, to avert the growth of borrowing costs, the Fed introduced financial repression, including the Treasury yield control and setting the rules encouraging investors to hold such securities in the portfolios. If the US central bank uses the experience of the past, the gold price will surge.

Dynamics of government debts

![LiteForex: XAU/USD forecast for 15.06.2020][1]

Source: Financial Times

Gold has featured a strong response to the outcomes of the FOMC June meeting. Jerome Powell made investors doubt in the V-shaped recovery of the US economy, and so, 10-year Treasury yield went back to 0.7%. The growth of the bond market rates in early summer was excessive and could hinder the GDP return to the trend. The gold market is quite responsive to the changes in Treasury yields. So, the Fed’s willingness to buy $80 billion in government bonds per month has encouraged the bulls. According to Gain Capital Group, this is a perfect scenario for [XAU/USD][2]. Concerns about slow recovery of economic growth and an unlimited monetary stimulus support the gold uptrend.

Dynamics of gold and Treasury yield

![LiteForex: XAU/USD forecast for 15.06.2020][3]

Source: Trading Economics

If the Fed manages to hold the bond market rates, the decline of the real yield amid a gradual acceleration of the inflation will support the price growth of the precious metal. Other growth drivers for the [XAU/USD][2] could be the weakness of the dollar and the stocks rally. The greenback is now seen as a main safe haven, so deterioration of the epidemiological situation in the USA has strengthened the US dollar, weighing on the S&P 500, which has somehow discouraged gold buyers. The gold price has been down to the important support at $1715-$1720 per ounce, the bulls need to hold the support up.

In my opinion, the success of the European countries in the fight with COVID-19 should suggest that the euro-area economy will recover quicker than the US. Do not forget that the EU is an export-led region, its close trade relations with China will play an important role in the future. The euro-area economy was hit by the US-China trade wars as much as China. However, in the present environment, the recovery of China’s economy is a very positive factor for the EU. Given the significant share of the euro in the structure of the USD index (57%), the downtrend of the US dollar will start sooner or later. This scenario could be canceled if the White House starts a new trade war, which is not advantageous under the current conditions. The escalation of the US- China trade battle will trigger the S&P 500 sell-off, which will press down Donald Trump’s approval ratings.

Therefore, gold buyers may count on such benefits as the decline of the Treasury real yield and the greenback’s weakening. Therefore, I would recommend buying gold if the gold price breaks out the resistance at $1745-$1750. The target could be set at $1830.

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Price chart of XAUUSD in real time mode

![Gold requires financial repression][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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  2. my.liteforex.com/trading/chart?symbol=XAUUSD&returnUrl=true
  3. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/gold-bonds-15-06-20.jpg?w=30&s=c1fb8ab3fe65544701883b62df362d5c
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  6. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-gold-15-06-20.jpg?q=75&w=1000&s=8caa78f8a71d36212ee9a2a85337b10f