Gold price forecast 30 March 2021

2021-03-30

China created problems for gold. Forecast as of 30.03.2021Dmitri Demidenko

Last year gold price reached a historical high, but in 2021, the precious metal lost its shine. What was China’s role? Let us discuss the Forex outlook and make up a gold trading plan.

Fundamental gold forecast for a week

Gold has not been able to go against the wind for long, although it resisted rising Treasury yields and the strengthening US dollar. While gold has traditionally been perceived as a hedge against inflation, it should be understood that the expected surge in consumer prices reflects economic growth. In addition, it is unlikely to be long-term.

Gold is on the verge of its first quarterly close in the red since 2018 amid rapid US vaccination rates, massive fiscal stimulus, and improved US GDP forecasts. It seems that the market has finally believed the Fed, which considers the potential surge in inflation to be temporary, and turns a blind eye to the rapid rally in debt market rates. This fact discourages ETF buyers from acquiring the assets of specialized exchange-traded funds and contributes to the first drop in [XAUUSD][1] prices in three months.

Monthly gold dynamics

Source: Bloomberg.

A strong dollar and booming Treasury bond yields are highly damaging for gold price. Whether the structural factors such as an aging population and low productivity that have taken place over the past several decades can prevent a further rally in US debt market rates or not, but the rates are going up. It is likely that by the end of 2021, the yield on 10-year securities will rise to 2%. Even considering the costs of hedging against currency risks, yield levels have been the most attractive for foreign investors since 2015.

Treasury yield dynamics, including hedging

Source: Nordea Markets

In my opinion, China played an important role in breaking the gold uptrend. In 2020, China invested about $500 billion in public investment to support its economy. This has led to an increase in imports of a range of commodities from oil to steel. As a result of rising commodity prices, investors began to think about accelerating inflation, which created favorable conditions for gold.

In 2021, the situation has changed. China is focusing on reorienting the economy from investment to consumption and fighting over-indebtedness. With the largest economy in Asia accounting for about 60% of raw materials demand, the correction in commodity market assets is understandable. Nickel prices fell by 18% in March, cobalt - by 13%, copper - by 9%. Even oil could not avoid a pullback. Such dynamics give rise to doubts about the acceleration of inflation and puts pressure on gold.

Weekly gold trading plan

According to OANDA, if the gold breaks the support at $1,700 and $1,670 per ounce, the downward movement will be surprisingly fast. Shortly it will be possible to observe the reaching of the $1600 mark. In the third article in a row, I talk about breaking the gold uptrend and recommend selling the precious metal in the direction of $1675 and $1640. [Hold the shorts formed in the level of $1730][2] and continue to use the growth of gold prices to add up to short positions.

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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