XAU/USD forecast for 18.08.2020

August 18, 2020

XAU/USD forecast: Gold market will face a turmoilDmitri Demidenko

Fundamental gold price forecast for today

Coronavirus vaccines will hold XAU/USD bulls back

Mass gold sell-offs in the mid-August discouraged the gold bulls. However, a quick rebound above $2000 per ounce allowed large banks to resume their recommendations to buy. According to Credit Suisse forecasts, gold prices will grow to $2500 in 2021. Standard Chartered Bank believes investors will use any price decline to open long positions amid the weak dollar, low bond rates, and substantial fiscal stimuli. There are enough bulls in the gold market, and this fact alone raises concerns in the extended rally of the [XAU/USD][1]. Can there be turmoil?

Many bullish factors have already been priced in the XAUUSD, and there are not so many growth drivers left. I mean the long-term dollar weakness and the Fed’s willingness to put up with the inflation above its 2% target for as long as it is necessary. The problem is whether consumer prices will grow. The inflation level, expected by the bond market, returned to the January level in five years; but it is still below the Fed’s target. Inflation-adjusted five-year options suggest a little chance that the indicator will be above 3%. It is more likely to slide below 1%. The story of 2009-2011 can repeat in the gold market. Then, the gold price, having reached its all-time high, crashed, as investors didn’t nay more believe that the fiscal stimulus could accelerate the PCE.

In my opinion, the bond market can give a clue on the future gold trends. Gold price correlates with the Treasury Inflation-Protected Securities (TIPS). The increase in the TIPS yields on August 11-12 triggered an [XAU/USD][1] correction.

Dynamics of gold and TIPS yields

![LiteForex: XAU/USD forecast for 18.08.2020][2]

Source : Wall Street Journal

The gold rally takes place ahead of auctions and amid talks about the Russian vaccine. The more is fiscal stimulus, the more money needs Treasury. The initial public offering makes investors sell securities in the secondary market, which pushes up the yields. Taking into account vast scales of the state funding, such a situation could repeat, which increases the risks of instability in the gold market.

Still, the most significant danger for the gold buyers could result from good news about the COVID-19 vaccine. The Treasury yields are quite responsive to the pandemic. Positive information about vaccines will support the economy, but, at the same time, it will weigh on gold. Purchasing managers think the glass is half-full, and the continuous rally of the US PMI must support the growth of the global bond market rates.

Dynamics of US PMI and Treasury yields

![LiteForex: XAU/USD forecast for 18.08.2020][3]

Source : Nordea Markets

Therefore, gold bulls still have two big advantages. They are the greenback weakness and the Fed’s willingness to put up with a high inflation rate. Nonetheless, unless the consumer price growth accelerates and the USD crashes, the [XAU/USD][1] will hardly continue to rally. On the contrary, an increase in the Treasury yields looks more likely, which suggests the relevance of the gold sales on the rise to $2050-2055 and $2130-2135.

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Price chart of XAUUSD in real time mode

![XAU/USD forecast: Gold market will face a turmoil][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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