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Gold price forecast 11 January 2021

2021-01-11

2021-01-11

Has gold changed the rules of the game? Forecast as of 11.01.2021Dmitri Demidenko

If a bull driver suddenly turns into a bear, a paradox arises in the market. Someone shrugs their shoulders in bewilderment, and someone is in a hurry to make money on it. Let us discuss the Forex outlook and make up a gold trading plan.

Fundamental gold forecast for a week

If in 2020, gold price rose thanks to incentives, then it sharply changed its behavior at the start of 2021. It marked the worst daily fall since the beginning of November as Joe Biden promised to spend trillions of dollars to support the economy after a December employment report in the US. Paradox? Not at all. The higher the assets rise, the more likely investors are to get dizzy and start taking profits.

At first glance, the collapse of the precious metal is a direct consequence of implementing the principle “buy the rumor, sell the fact”. Expectations of a “blue wave” at the end of 2020 allowed [XAUUSD][1] prices to show the best annual growth in a decade. Investors were actively speculating about a reflationary environment and high demand for gold as a hedge against inflationary risks. Inflationary expectations are indeed rising, but US Treasury yields are growing faster. As a result, real rates on the debt market go up, and precious metal goes down.

Dynamics of gold and US bond yields

Source: Bloomberg.

Investors play out the scenario according to which the US economy will quickly recover thanks to the COVID-19 vaccines, and the PCE will grow rapidly. This will force the Fed to shut its asset purchases program and possibly raise the federal funds rate. At the same time, rumors are growing in the market that due to the asymmetric forecast for the yield on US Treasury bonds, they can no longer fully perform the function of a safe haven. Buyers are depressed, sellers are jubilant, rates are rising. But investors are ignoring the Fed’s actions and can pay for it.

If other FOMC officials support the Fed Vice Chairman Richard Clarida’s opinion, it is unlikely that QE will fold down until the end of 2021. If so, the success of the bears in [XAUUSD][1] is likely to be a Pyrrhic victory.

Along with muted growth in Treasury yields, the weak dollar was considered to support the gold uptrend for the current year. However, the greenback gains back amid a rally in US debt market rates and political uncertainty in the United States. The Capitol’s storming, congressional calls for Donald Trump’s impeachment, and the last week in power of the unpredictable 45th US president raise concerns among investors and make them think of the dollar.

In my opinion, there is no talk of breaking the bull trend for precious metals. The Fed understands very well, if it now follows the lead of the bond market, which requires a higher value of the federal funds rate, this will negatively affect debt service, the economy, and stock indices. Simply put, there will be a tightening of financial conditions, which no central bank would like to see.

Weekly gold trading plan

I think that following Richard Clarida, other FOMC members, including Jerome Powell, will start talking about buying assets worth $120 billion a month, at least until the end of 2021. This will put a spoke in the wheels of both Treasury yields and the US dollar and allow buying gold on breakouts of resistance at $1860 and $1890 per ounce.

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