Omicron's emergence was balm to the precious metal, but the Fed's fearlessness in the fa...
Omicron's emergence was balm to the precious metal, but the Fed's fearlessness in the face of the new strain drew gold into a corner. Will XAUUSD bulls get out? Let’s discuss it and make a trading plan.
Quarterly Fundamental Forecast For Gold
Disappointing stats on US non-farm payrolls in November became a red flag for XAUUSD bulls. Thinking of the USD's overboughtness and record low real yields, they even started talking about "a perfect storm".
Inflation is growing fast, whereas the Fed is neither her nor there. Why shouldn't the precious metal go up? Unfortunately, the Fed seems over the hill.
According to Commodity Futures Trading Commission, speculators built on net longs in the USD against the six major currencies from $22.11 billion to $23.99 billion in the week ended November 30.
The peak value since mid-June 2019. Even if the USD looks overbought, we need to understand the world's biggest central banks will hardly have the same policy normalization pace as the Fed.
New Zealand, Norway, and Canada regulators are too small for investors to believe in their local currencies. What's more, they are under pressure due to the commodity markets' correction, including oil.
Despite Omicron and downbeat employment stats in November, Jerome Powell isn't planning to give up a faster QE taper and an earlier-than-expected federal funds rate hike. Thus, treasury yields will have to edge up and thus rob gold of the previous advantage.
Theoretically, the Fed might slow down as Goldman Sachs downgrades a US GDP forecast due to the new coronavirus strain. A tighter monetary policy will increase the risk of stagflation in these circumstances.
The US economy grew by more than 6% in Q2 but slowed down to 2% in Q3 due to the Delta variant. However, let's admit that the previous strain didn't make the Fed change its policy. It only created obstacles to GDP. Most probably, the same will happen to Omicron.
There's much in common between the events in early summer and winter. Then, the central bank abandoned its policy of patience and started to prepare markets for a QE withdrawal slowly. Now, it's ready to speed the process up and discuss the issue of higher interest rates.
Gold has lost about 4.3% and the USD index has grown by 6.2% since the FOMC's unforgettable meeting in June. The precious metal remains on the surface only amid bond yields hovering on the same levels and high inflation.
Quarterly Trading Plan For Gold
Expectations of US consumer prices' boost to 6.7% in November and hence the risk of Fed's aggressive monetary restriction and hawkish stance at a meeting on 15-16 December will keep gold under pressure for at least a few coming days.
Omicron will hardly affect the Federal Reserve's plans, so selling gold with the target at $1,715 and $1,680 per ounce would be wise. (Source)
