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Forecast for gold price for 15 October 2020

2020-10-15

2020-10-15

Gold needs another dose. Forecast as of 15.10.2020Dmitri Demidenko

Gold is rising along with the US stock market, behaving like a risky asset. How can it be? Let try to answer this question and make up a [XAUUSD][1] trading plan.

Monthly fundamental forecast for gold

If you are going to invest in gold, you should know that the existing stereotypes are deceiving. Gold is a safe-haven, which should be rising when the inflation grows. However, the events over the past years prove that it is not always so. Although the US consumer prices grew in 2015-2018, the [XAUUSD][1] price got stuck in the trading range of $1150-$1350 amid the Fed’s monetary tightening. At the peak of the recession ahead of the US presidential election, the uncertainty was growing, which was a favorable environment for safe havens, however, the gold price wasn’t rising.

The matter is not only in inflation but also in the Fed’s policy. During the previous crisis, the US central bank ended the QE because of the PCE changes and raised the federal funds rate. Nowadays, the Fed is willing to put up with high inflation. Finally, the nominal Treasury yield will be low, and the real yields will be declining along with the growth of consumer prices. These facts suggest the [XAUUSD][1] uptrend could resume in the long-term.

As for the middle-term and short-term outlook, much depends on who will win the US presidential election on November 3 and which party will control Congress. A ‘blue wave’ will signal the expansion of the fiscal stimulus, which will support the US stock indexes and gold. Gold has dropped after Steven Mnuchin said a new aid packaged wouldn’t be adopted before the election. If the Republicans keep the control of the Senate, they will hinder Joe Biden’s reforms. In this case, the uncertainty will increase, which will support the greenback and press down gold.

Dynamics of gold and S&P 500

Source : Trading Economics

The current environment is relational. Amid the Fed’s monetary stimulus, each fifths dollar appeared in 2020, which significantly boosted the money supply. At the same time, the central bank reached the financial conditions’ improvements, which also support the inflation growth.

Dynamics of money supply in the USA

Source : Nordea Markets

Dynamics of financial conditions and inflation in the USA

Source : Nordea Markets

According to BlackRock, inflation should rise in the medium-term, as global production costs grow, the Fed will ignore the PCE rise above 2%. Political pressure on the central bank to keep the interest rates low will increase.

Monthly trading plan for gold

Of course, there is a chance that the situation of 2011 when gold crashed without an increase in consumer prices. However, the Fed was proactive at that time and it is going to be patient now. In the short run, the gold trend will depend on the results of the US presidential election. A ‘blue wave’ will draw the gold price to $1970, and next to $2015. A dispute in the Congress will make new stimulus unlikely. If so, the uncertainty will grow and the gold price will fall towards $1850 and $1770.

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Price chart of XAUUSD in real time mode

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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