In financial markets, various assets are fluctuating, while behind the scenes, their value is being revalued. Precious metals and cryptocurrencies are benefiting from this process. Let’s discuss this and develop a trading plan for the XAUUSD.
The article covers the following subjects:
Major Takeaways
- Government debt is mounting.
- Confidence in bonds and currencies has been undermined.
- The XAUUSD becomes a portfolio diversification instrument.
- Gold purchases can be made with the target at $4,300.
Monthly Fundamental Forecast for Gold
If the US does not choose to raise the value of its gold reserves housed in Fort Knox—currently set at $42.22 per ounce since 1973—the financial markets will likely revalue the precious metal itself. Since the beginning of the year, the price of XAUUSD has increased by 57%, driven by the “debasement trade.” Notably, gold’s rally has yet to hit the ceiling.
The upward trend in gold is driven by entrenched inflation and fiscal dominance. Governments worldwide have accumulated significant debt and appear reluctant to reduce it. They are urging central banks to lower interest rates and the cost of servicing this substantial debt. As a result, both bonds and the currencies in which they are denominated are depreciating. This is particularly noteworthy given the ongoing easing of monetary policy, even in the context of high inflation.
Gold Price and World’s Major Currencies’ Performance
Source: Bloomberg.
Investors are seeking out alternatives as they have found them in the realm of decentralized finance. Gold and Bitcoin are immune to the volatility caused by government policies. These assets demonstrate resilience in the face of external shocks, such as the resignations of prime ministers in Japan and France or the recent shutdown in the US.
Notably, the devaluation of bonds and currencies has been occurring for a considerable period. The acceleration of this process was influenced by several factors, including the armed conflict in Ukraine, the West’s freezing of Russia’s gold and foreign exchange reserves, and the prevailing bipolar world order. While the US dollar accounted for 60% of central bank reserves in 2000, this figure fell to 41% by 2025. Gold is approaching parity with the US dollar in this respect, primarily due to its rising value.
Share of Gold and US Dollar in Global Official Reserves
Source: Bloomberg.
Central banks are not the only financial institutions diversifying their assets. In light of the debasement trading, many investors are opting to follow suit. Rather than the conventional 60/40 stock-to-bond allocation, alternative portfolio strategies are gaining traction. In these cases, investors allocate up to 20% of their funds to cryptocurrencies and precious metals.
Recently, Goldman Sachs has asserted that if 1% of global investment portfolios were to be reallocated from Treasuries to gold, the price of the latter would rise to $5,000 per ounce. Meanwhile, this process is already underway on a large scale. The share of foreign holders of US Treasury bonds is continuously decreasing.
Foreign Holders of US Treasuries
Source: Bloomberg.
Therefore, the rise of XAUUSD above $4,100 is the result of debasement trading. Central banks and investors do not want to depend on government policies and are diversifying their reserves and asset portfolios in favor of precious metals.
Monthly XAUUSD Trading Plan
Most likely, this trend will continue. The public debts of the US, France, Japan, and other countries are snowballing, and confidence in their currencies has been damaged. Meanwhile, gold purchases remain a relevant strategy. The first bullish target at $4,100 per ounce has been reached, with the second target of $4,300 already in sight.
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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