Gold Price Forecast: Time for XAU/USD to shine – DBS Bank

FXStreet Insights Team FXStreet

At current prices, gold is attractive to long-term buyers looking to hedge their portfolio against risks from dollar weakness, negative interest rates, high inflation and exogenous risk events. Economists at DBS Bank see the following four scenarios as probable, and the overall pattern is for gold price to rise in most scenarios.

See – Gold Price Forecast: XAU/USD to edge higher towards $1900 – ANZ

Gold to perform in most macro scenarios

“One scenario would be when the market renews its focus on US inflation risks, amid an improving labour market and supply-side disruption. This could set the stage for a ‘risk-off’ event. This scenario played out in 2003 when gold reacted strongly to inflation fears on the back of strong oil price.”

“Another scenario could be escalating virus cases as vaccine efficacy fades. This could lead to a downgrade in growth for 2022 and a delay in the quantitative easing (QE) taper timeline, which will then be a positive for gold. The US stock climb would probably come to a halt, and gold will serve its role as a hedge for volatility.”

“The inverse correlation with the USD Index (DXY) has intensified in 3Q21. Nevertheless, with negative correlation at a high, a reversal in the dollar’s strength could see a strong reversal rally in gold. Our DEER FX model indicates that the dollar is overvalued on a long-term basis. However, the dollar could stay firm into 1Q22, depending on the US’s QE taper timeline.”

“In a goldilocks scenario with moderate growth and mild inflation, there will be no rush for the Fed to hike interest rates, and bond yields will likely stay at low levels. We believe gold will still be supported in this environment as central banks around the world continue to accumulate gold as a risk diversifier.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.