Gold price forecast 18 February 2021

2021-02-18

Gold falls into old trap. Forecast as of 18.02.2021Dmitri Demidenko

The Federal Reserve System of the USA is not the only enemy of the gold bears. Global economic recovery will weaken the dollar and help [XAUUSD][1] traders. But will they find the strength to update the record high? Let us discuss the Forex outlook and make up a gold trading plan.

Fundamental gold forecast for a week

Those who cannot remember the past are condemned to repeat its mistakes. In the fall of 2011, gold prices soared to an all-time high of $1921 per ounce on hopes that massive monetary and fiscal stimulus designed to save the US economy from a recession would trigger inflation. This did not happen, and that record was held for almost ten years. What’s the current situation? A new recession, new fiscal stimuli from the Fed, the White House, and Congress, new expectations for a rise of consumer prices, and … a new [XAUUSD][1] high. Deja vu, isn’t it?

The parallels between the crises of 2008-2009 and 2020, of course, are apparent. But now, events are unfolding much faster. A deeper recession, more massive stimuli, and a faster recovery of the US GDP suggest that the Fed should act faster. The central bank started talking about curtailing QE in 2013, which finally “broke the back” of the gold bulls, inflated the yield on Treasury bonds, and established all necessary conditions for the USD index uptrend. If Jerome Powell was not afraid to repeat the past mistakes, the gold positions could be easily called hopeless.

A strong dollar and rising US debt market rates are the two main targets of the [XAUUSD][1] bears. Only the restraint of the Fed does not allow the events of 2013 to be repeated. At the same time, the dynamics of global business activity convince that the potential for a rally in Treasury yields has not been depleted, and the differential rates in the Eurozone and the United States are playing into the hands of the greenback.

Dynamics of global PMI and Treasury yields

Source: Nordea Markets.

Dynamics of [EURUSD][2] and rates of the US and Eurozone debt

markets

Source: Nordea Markets.

Not surprisingly, that the reserves of the largest exchange-traded fund, SPDR Gold Shares, are falling to their lowest levels since July. The growth in demand for physical assets in China and India is unlikely to help gold price. In 2013, the precious metal also flowed from West to East (ETF stocks were decreasing, Asia’s interest in jewelry was increasing), which was one of the reasons for [XAUUSD][1]’s reversal to a bearish trend.

The Fed is not the only enemy of the gold traders. The seasonal COVID cases decrease, vaccination process, the opening of economies after lockdowns, and their explosive growth will help to maintain global risk appetite at a high level and weaken the US dollar as a safe-haven currency. This scenario looks quite real, so the precious metal will still fight. Its buyers need to understand that the record high of $2075 per ounce most likely will remain so for the next ten years.

Weekly gold trading plan

For me, the main question is when to enter long trades with targets at $1300-1400? If current events were developing as in 2011-2013, then this would have to be done in 2022. Nowadays, time flows faster, so look for opportunities to open short trades in the second half of 2021. In the meantime, look for medium-term longs at the levels of $1800 and $1810 per ounce. The US dollar is not as strong as it seems, and the Fed will not allow Treasury yields to grow as fast as in January-February.

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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