Trader, analyst and instructor with a 6-year experience

Gold at $1400? No way!

   By Kira Iukhtenko, FBS analyst

Let’s shoot a quick glance at the prospects of XAU/USD. 

Our gold forecast in the medium and long term remains bearish. Why? It’s all about the Fed now. Investors keep in mind the improvement (real or not, this is another topic to discuss) of the US economic position. The Federal Reserve has been cutting the amount of monetary stimulus for 6 meetings in a row and is widely expected to finish QE in October. Market expectations go further: given the surprisingly hawkish FOMC July minutes and the optimistic Yellen’s tone in Jackson Hole, Fed funds rate is now very likely to be hiked in mid-2015. According to the most recent Bloomberg survey, the Fed will probably increase rates by 0.25 bps to 0.5% on July 2015 meeting. As a result, in the coming months we’ll see a much more expensive US dollar and a cheaper gold.

Why the gold is still consolidating in the narrow ranges? Demand for the bullion remains supported by the geopolitical concerns. It’s now not so easy to make any forecasts about the course and outcome of the war in Ukraine, but any spikes in uncertainty will slow the XAU depreciation down. However, these days the safe haven demand for gold has clearly become lower: even in the turbulent 2014 the price failed to rise above $1400. Global inflationary pressures also remain subdued, so investors don’t seek for gold as a store of value.

Technically, XAU/USD has been trading within the symmetric triangle since mid-2013 following a sharp drop in H1 2013. By the end of August the price declined to the lower triangle boundary (currently at $1270), but holds within the pattern for now. You should also note that XAU tested the lower border of the monthly bullish Ichimoku cloud this year (currently at $1298), but failed to hold there for long. The pair has been trading in a bearish channel since July.

Considering the fundamental and technical aspects, the yellow metal will likely extend the downside in autumn. Break below the $1270 support will likely open the way to our medium term targets at $1240, $1180 and lower. Dramatic developments in Ukraine or on the Middle East could push the price higher, but we expect the $1350 resistance to limit the upside in any case.

Chart. Weekly XAU/USD

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