The third quarter was a stellar period for gold. Central banks bought bullion, ETF holdings increased, and the US dollar weakened amid expectations of a Fed rate cut. However, at the end of October, these trends reversed. Let’s discuss this topic and make a trading plan for the XAU/USD.
The article covers the following subjects:
Major Takeaways
- The rally in the USD index is putting pressure on gold.
- Central banks will not be able to buy 1,000 tons of bullion in 2025.
- Demand from the jewelry sector will continue to decrease.
- Gold can be sold at $3,950, $3,905, $4,140, and $4,200.
Weekly Fundamental Forecast for Gold
After a sweeping sell-off in late October, gold managed to consolidate near the psychologically important mark of $4,000 per ounce. The impressive third quarter is now over, and the strengths that XAUUSD enjoyed yesterday are now turning into weaknesses.
A strong dollar and rising US Treasury yields are painful for gold. The Fed’s intention to show the markets that they have run ahead of themselves with their rate forecasts has helped the USD index. The chances of monetary policy easing in December have fallen from more than 90% before the last FOMC meeting to 67%. Meanwhile, investors are revising their views on the future of borrowing costs, and the greenback is benefiting from this.
Central banks are not buying bullion as actively as before. According to the WGC, their purchases rose to 220 tons in the third quarter. This is 28% more than in April-June. However, from January to September, the figure increased by only 634 tons, which is lower than the equivalent period for the last three years. The World Gold Council forecasts its growth to 750-900 tons. However, from 2022 to 2024, regulators added 1,000 tons or more to their reserves each year.
Central Bank Gold Buying
Source: Bloomberg.
Record quarterly demand growth to 1,313 tons was driven by investors who were actively investing in ETFs, bars, and coins. However, as events at the end of October showed, the collapse of XAUUSD was accompanied by a flight of investors from gold exchange-traded funds. This proved once again that ETF stocks follow the price, not the other way around.
According to the WGC, jewelry demand fell by 23% year-on-year in June-September amid record-high prices. At the same time, recent tax changes in China suggest that companies producing non-investment gold can now only offset 6% of VAT, a decrease from the previous 13%, which may further drag XAU/USD quotes lower. In fact, this means a 7% price increase across the industry, which will be another blow to demand.
Gold Demand By Sector
Source: WGC.
As a result, the spectacular third quarter for gold is now a thing of the past. The precious metal’s strengths have either ceased to work or are not as effective as they once were. At the same time, the strong dollar, surging US Treasury yields, declining investment demand for physical metal, and the further deterioration of the jewelry industry do not promise anything good for XAUUSD bulls.
Weekly Trading Plan for XAUUSD
Against this background, short positions on gold can be considered if the quotes drop below the support levels of $3,950 and $3,905 per ounce. At the same time, the precious metal can be bought above $4,045, with short trades formed on a rebound from the resistance levels of $4,140 and $4,200.
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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