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Gold (XAU/USD) surged to all-time highs above $2,000 in August. The yellow metal went into a consolidation phase below $2,000 toward the end of summer and staged a deep correction in November. However, the improving market sentiment in the last quarter of the year also weighed heavily on the USD and allowed XAU/USD to rebound toward $1,900. Gold looks to build on 2020 gains with central banks staying dovish, FXStreet’s Eren Sengezer reports.

Key quotes

“Despite the liquidity flooding the financial markets, inflation outlook in major economies remains subdued and major central banks voiced their commitment to keeping their policies extremely loose until they see a convincing increase in price pressures. This suggests that investors will not give up on gold in the near future.” 

“A return to normality with mass COVID-19 vaccinations could make risk-sensitive assets more attractive, especially in the second half of 2021, and dampen the demand for the yellow metal.” 

“The Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, dropped to 1.4% on a yearly basis in October. The Fed might take a dovish action unless there is a dramatic jump in inflation data and XAU/USD could gather bullish momentum.”

“On the monthly chart, the price seems to have recovered above the ascending trend line coming from May 2019, confirming the bullish outlook. If XAU/USD continues to follow that line, a rise above $2,000 could be expected around mid-2021.”