An unfavorable macroeconomic backdrop, fading support from central banks and ETFs, and the bubble burst have sent gold into a tailspin. Attention is now turning to potential catalysts, including the Federal Reserve’s policy decisions and the anticipated SpaceX IPO. Let’s examine these factors and develop a trading plan for the XAU/USD.
The article covers the following subjects:
Major Takeaways
- Gold has plummeted to its lowest level since the fall.
- The dollar and Treasury yields are weighing on the XAU/USD.
- Central banks and ETFs are not helping the precious metal.
- Short trades on the XAU/USD can be opened with targets of $3,950 and $3,800.
Weekly Fundamental Forecast for Gold
Gold and Bitcoin share one common trait: they are both falling, regardless of the US dollar, stock indices, Treasury bonds, or changes in the likelihood of the Fed tightening monetary policy. What used to matter no longer does. This is what usually happens with assets bought simply because they were rising. In other words, the bubble has burst.
Gold Price and US Stock Indices
Source: Financial Times.
Formally, XAU/USD quotes decline on the assumption that, due to the conflict in the Middle East, US inflation will remain elevated for an extended period. Sooner or later, this will lead to a hike in the federal funds rate. If investors expected rates to fall at the start of 2026 but now expect them to rise, their strategies will have to be radically changed. In other words, at the beginning of the year, speculators were actively selling the US dollar and buying gold. Now, the opposite is true.
The backdrop is indeed unfavorable for the precious metal. It does not generate interest income for its owners, so it cannot compete with Treasuries when their yields rise. Gold is priced in US dollars, so it should have an inverse correlation with the US dollar. A similar pattern occurred in 2022, but at that time XAU/USD prices rose due to active bullion purchases by central banks as part of de-dollarization and reserve diversification efforts, as well as an increase in ETF holdings.
Gold Price and US Treasury Yield
Source: Bloomberg.
Currently, financial regulators appear unwilling to purchase gold at previous volumes, and gold ETFs pose a heightened risk. According to Standard Chartered Bank, the drop in XAU/USD prices below $4,200 has increased the volume of unprofitable ETF holdings from 270 tons to 298 tons. Investors are actively selling them, which is accelerating the sell-off.
The collapse is also being driven by gold’s relatively new role as a source of liquidity. It is typically sold during stock market corrections to meet margin requirements on equities. Something similar is happening now—investors need funds to participate in the SpaceX IPO, and they are raising them by selling previously held securities and gold.
Most likely, it is Elon Musk’s company’s IPO that will allow gold to regain ground. However, significantly more compelling factors are needed to reverse the downward trend—the Fed shifting toward discussions of easing monetary policy, increased central bank activity in the bullion market, and, finally, the return of XAU/USD quotes to equilibrium levels following the burst bubble.
Weekly Trading Plan for XAU/USD
These factors provide grounds for adopting a strategy of selling the XAU/USD and shifting key support levels to $3,950 and $3,800 per ounce. A rebound from these levels would present an opportunity to open long positions in the medium term.
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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