Gold price forecast 28 December 2020

2020-12-28

Gold got hooked on steroids. Forecast as of 28.12.2020Dmitri Demidenko

Only the blue wave will allow gold to return its price above $2000 per ounce. In all other cases, the previously set record can remain so for many years. Let us discuss this topic and make up a gold trading plan.

Six-month gold fundamental analysis

To see the future, you need to look back at the past. Gold is ready to demonstrate the best annual growth since 2010. Stimuli have been the main driver of the [XAUUSD][1] rally. In response to the recession caused by the pandemic, the US Congress and the Federal Reserve spared no expense, and most importantly, they acted quickly and decisively. As a result, in August, the precious metal managed to reach an all-time high of $2075 per ounce. In October, gold rallied in the hope of the blue wave. Finally, $892 billion fiscal stimulus endorsed by Congress and Donald Trump pushed gold up to the 6-week high. Can it count on the old trump cards in 2021?

Gold dynamics

Source: Bloomberg.

I strongly doubt that next year the Federal Reserve is going to demonstrate a tenth of the madness that has become the Fed’s calling card in the spring of 2020. Indeed, the FOMC’s December forecasts suggest that the regulator is not going to raise the rate in 2021-2023. However, it is quite possible that it was just overreacting. If inflation expectations rise sharply due to oil, the blue wave, and the booming US economic recovery, the Fed’s outlook will definitely change. The hawkish rhetoric and the earlier start of monetary policy normalization will lead to the dollar strengthening. However, I don’t think this will happen before the second half of 2021.

In the period from January to June, financial markets will be dominated by the topics of defeating the pandemic, global economic recovery, and fiscal stimulus. The first two of them are likely to support the bears on the USD index. This is good news for the precious metal, but in reality, the gold trend will depend on the US Congress. Even more precisely, it will be determined by American voters. In January, they are going to decide who will get two seats in the Senate. If the Democrats win, the blue wave will become a reality, an $892 billion fiscal stimulus will mark the beginning, and a reflationary environment will become very possible.

On the contrary, the Republican victory would split Congress, make it harder for Joe Biden to push his ideas through lawmakers, and the [XAUUSD][1] upward movement will lose momentum. In the first case, gold will have the opportunity to return above $2000 per ounce. In the second, it risks entering the zone of mid-term consolidation of $1750-1950.

These scenarios are based on the weakness of the greenback in the first half of 2021. However, unexpected circumstances can lead to increased uncertainty and return the demand for safe-havens. As a result, the dollar will start to recover earlier than expected. This option is supported by the EURUSD reaction to the US presidential elections. Since 2000, the main currency pair has consistently peaked for one to three months after the vote, after which the prices began to fall.

[EURUSD][2] reaction to the US presidential election

Source: Nordea Markets.

Six-month ****gold trading plan

In my opinion, there is a 60% probability of a divided Congress and a consolidation of gold in the range of $1750-1950 per ounce during the first half of 2021. I give the 30% chances of the blue wave and the rise of a precious metal’s price above $2000. There is a 10% probability of the premature strengthening of the US dollar, which will initiate the bear trend in [XAUUSD][1].

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.

Rate this article:

( {{count}} {{title}} )