A 20% decline from recent highs is generally considered the beginning of a bear market. Gold continues to suffer from elevated bond yields, fears of further Fed monetary tightening, and weaker support from central banks. Let’s discuss this topic and make a trading plan for XAU/USD.
The article covers the following subjects:
Major Takeaways
- Speculators remain reluctant to buy gold.
- Central banks are becoming more active in the bullion market.
- Gold ETFs recorded $9 billion in outflows in June.
- XAU/USD’s next move will depend on the inflation report.
Weekly Fundamental Forecast for Gold
Gold’s troubles show no sign of ending. Just as the precious metal recovered from its worst quarterly decline in relative terms since 2013, it was hit by another setback. The escalation of the Middle East conflict revived concerns that elevated inflation could force the Federal Reserve to tighten monetary policy further. Such expectations tend to strengthen the US dollar and push US Treasury yields higher, which is a highly unfavorable combination for XAU/USD.
During the Middle East conflict, gold lost around one-fifth of its value, which, in technical analysis terms, marks the transition into a bear market. According to TD Securities, the sharp decline between March and June was driven by the liquidation of long positions. Speculators remain hesitant to rebuild bullish positions amid uncertainty over the Fed’s policy outlook and still-elevated Treasury yields.
Gold Speculative Positioning
Source: Bloomberg
The possibility of another increase in the federal funds rate continues to weigh on XAU/USD. However, in 2022–2023, gold rallied despite the Fed’s aggressive monetary tightening. Back then, central banks provided strong support through large-scale bullion purchases. In the first half of 2026, however, their appetite for gold weakened. Still, there are some encouraging signs. Central banks purchased 41 tonnes of gold in May, the highest monthly figure of the spring. In June, the People’s Bank of China increased its gold reserves by 480,000 ounces, bringing total holdings to 75.44 million ounces—the strongest monthly increase since October 2023.
Central Bank Gold Purchases
Source: Bloomberg
As for ETF holdings, they tend to follow gold prices rather than drive them. According to the World Gold Council (WGC), ETFs recorded outflows of 74.3 tonnes, equivalent to $9 billion, in June. Nevertheless, inflows since the beginning of the year still total 17.6 tonnes. This trend prompted JP Morgan to lower its expectations. Whereas the bank had previously forecast ETF reserve growth of 400 tonnes in 2026, it has now reduced its estimate to 50 tonnes.
Gold Prices and ETF Holdings
Source: Bloomberg
In my view, without continued support from central banks, gold is unlikely to repeat its 2022–2023 performance by rallying despite tighter Fed monetary policy. That said, whether the federal funds rate is raised again will largely depend on inflation. If both CPI and PCE remain elevated for an extended period, expectations of further Fed tightening could strengthen, putting additional pressure on XAU/USD.
Weekly Trading Plan for XAU/USD
In this regard, the June inflation report will be a litmus test for gold. Softer-than-expected inflation data would reinforce the view that inflation has peaked, reduce expectations of further Fed rate hikes, and create an opportunity to open long positions targeting $4,400 per ounce. Conversely, an unexpected acceleration in CPI would provide a reason to sell XAU/USD with a downside target of $3,900. Developments in the Middle East will also play an important role. Further escalation of the conflict would pose a significant risk to the precious metal.
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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Source: Original Article
