In gold we trust: XAUUSD outlook

  (photo credit: INGIMAGE)
(photo credit: INGIMAGE)

In gold we trust, said the traders when they saw the inflation rates and invested in XAUUSD. Although known as a reliable hedge in unreliable times since the dawn of humanity, recently gold is also going down. About time to search for a new Noah’s Ark for investors or is it too early to flee this ship?

Gold has certainly done well over the past year, rising from $1,600 to almost $2,000 an ounce. Investors, however, became more cautious as the major Central Banks continued to fight inflation by raising rates. Gold prices rose slightly on Monday, June 26, as the Dollar Index weakened ahead of key inflation data – and, yes, probably more raising interest rates.

For June, prices are down 2.8% so far after a 1.8% pullback in May. Despite this, gold has risen about 5% this year. However, this correction is unlikely to break the long-term bullish trend. The current sell-off looks like a liquidation of fund positions that are guided by the long-term technical picture.

XAUUSD Chart (Credit: TradingView)
XAUUSD Chart (Credit: TradingView)

Spot gold prices in June

The main reason for the fall is the Federal Reserve’s aggressive policy. More precisely, the rhetoric. In his last speech, Jerome Powell specifically hinted at a continuation of the country's rate hike cycle. All eyes are on the Fed on Friday, 30, when the central bankers release their rate decision. 

Investors are virtually convinced that the regulator is going to increase again - up to 5.25-5.5%. Expectations of further rate hikes, above all in the USA, are likely to continue to dampen sentiment on the gold market. 

There is a second reason for the gold movement – a decline in consumer demand for gold in China. As you might know, China and India are the biggest consumers of gold, jewelry and various coins. The Bank of China has been buying impressive amounts of gold for seven months in a row. After the quarantine restrictions were lifted, the expected surge in consumer demand for precious metals occurred, which supported a record-high gold price of more than $2,000 per ounce.

The growth, however, began to slow down as the economic recovery hadn’t happened as fast as expected. Industrial production and retail trade were unable to show impressive performance in June. Seeing this, the Chinese government lowered the interest rate, and the country still might achieve the growth spurt planned for this year. This means that the demand for gold is likely to return.

This article was written in cooperation with TradingView