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Gold price forecast 10 December 2020

2020-12-10

2020-12-10

Senate will determine gold trend. Forecast as of 10.12.2020Dmitri Demidenko

Despite the favorable environment, the demand for gold is declining. What will support gold, and what will press it down in 2021? Let us analyze the gold outlook and make up a [XAUUSD][1] trading plan.

Monthly gold fundamental forecast

Gold traders respect those who give money to the financial markets. They are the Fed, having surprised investors with cheap liquidity flows in the spring, and the Democrats, willing to provide a bigger fiscal stimulus than the Conservatives. Once the risk of a ‘blue wave’ started declining after the US presidential election, the gold has started falling in value and reached one of the targets set in [late autumn][2], the level of $1775. The drop was followed by a rise, once the Congress had returned to the idea of a fresh stimulus package.

Technically, the current environment is favorable for the [XAUUSD][1] bulls. According to Bloomberg, the Fed, the ECB, the Bank of Japan, and the Bank of England have spent $5.6 trillion on quantitative easing in 2020. These central banks are willing to hold the bond yields low for quite a long time to support the global economic recovery. The US dollar outlook for 2021 is bearish amid the lower demand for safe havens and US securities. Although the central banks will hardly pour the same amount of cheap money into the financial system shortly, and gold won’t hit new all-time highs, but the XAUUSD can still go up.

Dynamics of balance sheets of the world’s leading central banks

Source : Bloomberg.

On the other hand, investors lose interest in gold, despite the favorable environment, and look for alternative investments—for example, the [BTCUSD][3]. Unlike gold, highly demanded by the Baby Boomers, the new generation worships cryptocurrency. According to JP Morgan, institutional investors have just started recognizing bitcoin, while the demand for gold ETFs is fading away. Since early October, the capital inflow into the exchange-traded securities of Grayscale Bitcoin Trust has accounted for $2 billion. The capital outflow from gold ETFs has been $7 billion over the same period.

Dynamics of BTC and gold ETF holdings

Source : Bloomberg

I don’t think it’s time to give up on gold now. But it is not relevant to add up to gold longs as well. A weak US dollar and the Fed’s willingness to hold the bond yields low are positive for the [XAUUSD][1] bulls. However, they lack the reflation environment to continue the rally. The reflation would occur if Congress provides the US economy with a massive fiscal stimulus and continue to support economic recovery. Joe Biden believes that whatever the amount of aid in 2020 will be, it is just the beginning of a huge boost. It will come true unless anything stops the new US president.

** Monthly gold trading plan**

Who or what can set Biden’s developments back? The major enemy of gold now is the Senate majority leader Mitchell McConnell. However, if the Democrats get the two remaining seats in US Congress’s upper house, McConnell’s power will end. If so, investors will return to the idea of a reflation environment, and the gold uptrend will resume. Otherwise, the [XAUUSD][1] trend will turn down in 2021. The election results will be announced in mid-January. Until then, gold is likely to enter a consolidation range of $1770-$1 890 per ounce. Traders should sell gold on the price rise towards the upper border of the trading channel; it will be relevant to buy on the price fall towards the lower border.

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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  1. my.liteforex.com/trading/chart?symbol=XAUUSD&returnUrl=true
  2. www.liteforex.com/blog/analysts-opinions/gold-faces-bad-times-forecast-as-of-26112020/
  3. my.liteforex.com/trading/chart?symbol=BTCUSD&returnUrl=true