Gold Resumes Bullish Trend After Short-Term Weakness. Forecast as of 04.03.2025
The ongoing armed conflict in Eastern Europe, the stagflation risks in the US, and the ongoing trade wars are contributing to a heightened degree of uncertainty, thereby supporting gold’s rapid recovery. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US has suspended military aid to Ukraine.
- The latest data reinforces the risks of stagflation in the US.
- Capital inflow into gold ETFs has set a new record.
- Purchases can be considered if gold remains above $2,900.
Weekly Fundamental Forecast for Gold
Gold’s resilience in the face of challenges is akin to a skilled heavyweight boxer who, after being knocked down, rises and defies expectations by dictating the terms of the match. The precious metal has deviated from its historical correlation with US stock indices, whose sharp sell-offs typically dragged XAUUSD quotes down. This deviation was driven by investors’ strategic decisions to meet margin requirements on shares. In addition, the situation in Ukraine has evolved, making it less clear-cut than it appeared a week ago.
The recommendation to sell gold at $2,920 per ounce proved successful, but the downward movement was short-lived. The drawdown was based on the assumption of a significant pullback in the S&P 500 index and on the expectation that Donald Trump would resolve the conflict between Russia and Ukraine promptly. The improvement in relations between Washington and Moscow represented a shift from the bipolar world, which could cancel de-dollarization, and central banks would stop actively buying the precious metal. However, the reality proved less straightforward.
Capital flows into gold ETFs
Source: Bloomberg.
Kiev is not showing signs of capitulating to pressure from the White House. As a result, the US has decided to suspend military aid to Ukraine, yet the armed conflict in Eastern Europe persists. This development has contributed to a significant influx of capital into gold ETFs, thereby supporting the recovery of XAUUSD quotes.
The trends of US stock indices and gold have diverged. The S&P 500 index rallied strongly in the fourth quarter on expectations that Donald Trump’s fiscal stimulus and deregulation would create a Goldilocks scenario for equities, with GDP growing above trend and inflation slowing. This would be the perfect storm for gold, which is why the precious metal retreated after the US presidential election.
Nevertheless, signs of a cooling US economy are prompting investors to paint a stagflationary scenario, which is unfavorable for stock indices. Conversely, this environment bodes well for the XAUUSD, as falling real Treasury yields have created a favorable backdrop for the asset.
Gold Performance and US Generic 10-Year Yield
Source: Bloomberg.
Therefore, the armed conflict in Eastern Europe continues, the outlook for the US economy is worsening, and trade wars introduce further uncertainty. The uncertainty index has reached an unprecedented level, likely to exert downward pressure on gold prices, at least in the short term.
Global Economic Policy Uncertainty Index
Source: Bloomberg.
Weekly Trading Plan for Gold
Due to the absence of definitive answers regarding the timeline for the conclusion of the armed conflict in Ukraine and the potential impact of stagflation on the US economy, the precious metal may enter a consolidation phase. If gold quotes remain above $2,900 per ounce this week, short trades established at $2,920 should be closed, and long positions can be considered.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
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