The Fed refuses to protect the US economy and markets from high inflation, but gold can do so. The 43% rally of the XAUUSD in 2025 demonstrates the high demand for the precious metal as a safe haven. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Fed’s rate cut is not the only bullish factor for the XAUUSD.
- The stagflationary scenario is favorable for gold.
- Geopolitical factors are supporting the precious metal.
- Long positions on gold can be opened with the targets of $3,800 and $3,900.
Weekly Fundamental Forecast for Gold
Gold has been labeled as a hedge against inflation. The roots of this story go back to the 1970s, when double-digit price growth in the US led to a record-fast rally in the precious metal. However, over the past half-century, there have been many examples where this connection has been broken. The main reason is that the Fed is the main shield against inflation. The XAUUSD tends to rise when the central bank ceases to fight soaring prices. This was the case in the 1970s, and it is happening again now.
After the pandemic, double-digit price growth returned to the US, the Fed embarked on the most aggressive tightening of monetary policy in four decades, and the precious metal stuck in the $1,650–$2,050 per ounce range in 2022–2023. Only the cooling of the labor market and expectations of the start of a cycle of monetary expansion allowed it to begin an impressive bull run. In those years, the US economy was growing rapidly, which stimulated price growth. Today, the situation is different.
The Fed acknowledges that there is no risk-free path in a context of bilateral risks. The central bank is no longer concerned about accelerating inflation. It believes that this is a lesser evil compared to the cooling of the labor market. In essence, the Fed is not there to guard against inflation. Investors are rightly seeking refuge in gold. This has led to a 120% rally in the precious metal and the largest inflow of capital into gold ETFs in the last three years.
Capital Flows into Gold ETFs
Source: Bloomberg.
In the 1970s, there was a similar pronounced stagflationary backdrop, with prices accelerating and the economy losing steam. The same pressure from the US administration on the Fed, which at that time ended in lower interest rates, brought disaster to the US. In 1979, gold soared by 140%. The only thing missing is a sharp rally in oil prices. However, who knows how it will all end if the US unleashes an economic war against Russia?
Historical parallels suggest that the 43% rally in XAUUSD quotes in 2025 is far from the limit. The precious metal has not yet revealed its full potential. According to Deutsche Bank, its average price in 2026 will be $4,000 per ounce. In other words, gold may rise significantly higher against the backdrop of expected purchases of 900 tons of bullion by central banks and the easing of the Fed’s monetary policy.
Market Expectations on Fed Interest Rate
Source: Bloomberg.
Thus, the Fed’s resumption of monetary expansion against a backdrop of stagflation has created favorable conditions for a rally in the XAUUSD. Geopolitical factors, de-dollarization, and reserve diversification are also contributing to this rally.
Weekly Trading Plan for XAUUSD
Gold has room to grow, and long positions established at $3,400 per ounce appear to be an optimal strategy. At the same time, more long trades can be opened. In addition, gold has reached the first target of $3,800, with the second target of $3,900 now within sight. It is quite likely that new bullish targets should be set higher.
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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