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Forecast for gold price for 22 October 2020

2020-10-22

2020-10-22

Gold allies itself with euro. Analysis as of 22.10.2020Dmitri Demidenko

Probably, it’s not fiscal stimulus that makes financial markets move. To find out the truth, a more thorough look may be needed. Let’s have a try and make a trading plan for gold.

Weekly fundamental forecast for gold

Looking at financial assets’ different reaction to uncertainty around the US fiscal stimulus, we may wonder if that is someone’s plan to draw investors’ attention from something much more serious. Indeed, there is a doubt that another support package will be accepted before the election, and that makes the stocks fall. On the contrary, the treasury yield has reached its highest since the beginning of June on expectations of additional issuance and capital flow from the secondary market to the primary market. The falling dollar increases the turmoil, which usually points to a drop in uncertainty. What’s going on? How should the traders who work with gold behave?

According to TD Securities, fiscal stimulus news is nothing but market noise. The package will be approved of anyway, before or after the election. That will strengthen the current reflation and support stock indexes and gold. As for the treasury yield growth, it can’t last forever. Investors know well that one doesn’t play against the Fed. Jerome Powell and his colleagues won’t allow borrowing costs to soar, which will complicate the process of the GDP’s recovery. The Fed will start to buy long-term debt funds, and that will lower profitability. Thus, gold has only one way to go: north.

I agree with TD Securities, and would also like to add that an important bullish driver for [XAUUSD][1] is a weak dollar. To be more precise, it’s a strong euro, its share in the USD index being 57%. The first issuance of the EU common bonds and high demand for the peripheral countries’ bonds will move money from the USA to Europe and support [EURUSD][2] bulls. Indeed, the fall in the treasury yield may not be related to fiscal stimulus expectations, but to the goal of selling treasuries and buying the European bonds.

[EURUSD ][2]and US treasury yield

Source: Trading Economics.

Thus, fiscal stimulus talks are nothing more than a cover that most likely hides the faster flow of money to the European bond market. That explains why the US dollar is weak, and the treasury yield grows. For how long will the [EURUSD][2] be rallying and supporting gold? For as long as the ECB is maintaining a rumor of extending the asset buying program at the meeting on 29 October. The Executive Board’s members, including key economist Philip Lane and Christine Lagarde, have been often mentioning COVID-19’s fast spread across Europe and its negative impact on GDP and inflation. Thus, the market has already started factoring the expectation that QE will be expanded at the Board’s nearest meeting.

Weekly trading plan for gold

Even if “golden” bulls have already failed twice to take the resistance level of $1,930 per ounce, they won’t quit trying. A successful breakout will be a signal for building up long positions formed at the level of [$1875][3].

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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. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  3. www.liteforex.com/blog/analysts-opinions/gold-could-break-the-bottom-forecast-as-of-28092020/
  4. my.liteforex.com/?category=analysts-opinions&slug=gold-allies-itself-with-euro-analysis-as-of-22102020&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
  5. my.liteforex.com/deposit/?category=analysts-opinions&slug=gold-allies-itself-with-euro-analysis-as-of-22102020&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus