Gold price forecast 18 March 2021

2021-03-18

Gold acts too impulsive. Forecast as of 18.03.2021Dmitri Demidenko

It would seem that the strong dollar and growing US Treasury yields should have forced the [XAUUSD][1] bulls to give in, but they continue to resist. The question arises, for how long? Let us discuss the Forex outlook and make up a gold trading plan.

Fundamental gold forecast for a week

Looking at how strong gold was ahead of the FOMC meeting against the backdrop of growing US Treasury yields and the US dollar’s strengthening, I caught myself thinking that the precious metal was waiting for the Fed’s verdict. As a result, the gold price soared to a 2-week high, but the [EURUSD][2] bulls’ inability to break out the resistance at level 1.199 drove the gold price down. Perhaps the central bank would like the greenback to be weaker than it is now, but without the recovery of the economies competing with the US, this will be extremely difficult to implement.

The Fed has both good and bad news for gold. The regulator expects inflation to accelerate to 2.2% in 2021, followed by a slowdown to 2% in 2022 and 2.1% in 2023, and, most importantly, is ready to tolerate consumer prices’ rise. Jerome Powell considers the current monetary policy parameters are fair, and most FOMC members do not plan to raise rates until 2024. The precious metal is traditionally perceived as a hedge against inflationary risks. In turn, accommodative monetary policy tends to create a tailwind for gold, contributing to the dollar weakening and low debt market rates. This time it’s not like that.

The Fed’s move to target average inflation and get rid of incentives ahead of time makes financial markets doubt Powell’s words. As a result, US Treasury yields are rising, while gold ETFs holdings are rapidly decreasing, having dropped by 150 tons since the beginning of the year.

Dynamics of gold and ETFs holdings

Source: Bloomberg.

US debt market rates will continue to rise. These are the outcomes of a situation where the economy is ready to accelerate to 6.5% in 2021 and where the population has about $1.7 trillion in excess savings, according to Bloomberg estimates, excluding Joe Biden’s fiscal stimulus. Expectations of faster US GDP growth compared to competitors tend to strengthen the greenback.

Dynamics of the USD index and expectations of economic growth in the

US and other G10 countries

Source: Nordea Markets.

Perhaps the Fed would like the USD index to be weaker than it is now, but without acceleration of the EU vaccination campaign and the associated improvement in eurozone business activity, the [EURUSD][2] price at best will begin to consolidate, and at worst will continue to fall. The euro share in the USD index structure is 57%, so the European currency is an important driver of gold market changes. It is likely that in the third quarter, or perhaps a little earlier, a lot will change, but so far, the [XAUUSD][1] bulls’ attacks look too impulsive. As a rule, such behavior leads to a loss of money.

Weekly gold trading plan

In my opinion, the strong USD and growing US Treasury yields create preconditions for gold sales on the rise to $1755 and $1775, or on the breakout of supports at $1730 and $1710 per ounce. The targets for the downward movement are $1675 and $1640.

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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