While Donald Trump and Elon Musk are engaged in a dispute over the “Big, Beautiful Bill,” gold market participants are evaluating the potential risks. Will fiscal stimulus boost or hurt XAUUSD quotes? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
A decline in risk appetite supported the XAUUSD.The Fed has not ruled out a rate cut in July.The price of the precious metal depends on US labor market data.Strong employment data will likely push gold towards $3,100.
Weekly Fundamental Forecast for Gold
If there were no conflict between the richest man in the world and the most powerful, it would be worthwhile to invent one. Elon Musk criticized Trump’s tax cut plan, stating that its adoption by Congress could potentially result in the formation of a new political party, dubbed “the America Party.” Donald Trump responded that government subsidies should be withheld from Musk and that the entrepreneur should return to his homeland, South Africa. Mutual threats are dampening risk appetite, allowing gold prices to rise.
The $3.3 billion bill, which includes $4.5 billion in fiscal incentives and $1.2 billion in budget cuts, no longer includes subsidies for Americans to buy electric vehicles. This is a significant setback for Tesla, causing concern for Elon Musk. The impact of the Senate’s approval of Donald Trump’s initiative on gold prices remains to be seen.
On the one hand, the Treasury will need to increase bond issuance. In order to attract foreign investors to auctions, it would be advantageous to weaken the US dollar. The US dollar has experienced its worst start to a first half since 1973, amid an active build-up of speculative short positions, which propelled the XAUUSD rally.
Speculative Positions on US Dollar
Source: Bloomberg.
Conversely, substantial fiscal stimulus measures are poised to bolster the US economy, compelling the Fed to maintain elevated federal funds rates for an extended period. This will hinder the precious metal’s potential to resume its upward trend. According to the BMI, only two factors would allow gold to break above $3,500 per ounce: aggressive monetary easing by the Fed or a regional war in the Middle East. At this juncture, both scenarios appear improbable.
The XAUUSD rate has shown signs of stabilizing, likely due to Jerome Powell’s shift in economic stance, which has become less hawkish. In his recent testimony before Congress, the Fed Chairman indicated that a reduction in the federal funds rate was not anticipated before September. During a meeting of central bank governors in Sintra, Portugal, he stated that he would not rule out a rate cut at any of the FOMC meetings.
EURUSD Performance and Euro Area-US Economic Surprise Index Spread
Source: Bloomberg.
The derivatives market gives only a 19% probability of a cut in the federal funds rate in July. However, if June’s US employment statistics disappoint, the chances will rise sharply. This will weaken the US dollar, providing a tailwind for gold. Indeed, the cooling of the US economy is reflected in the economic surprise index differential and contributes to the rally of the EURUSD pair and the decline of the USD index.
Weekly Trading Plan for Gold
Disappointing US labor market data will allow gold to soar to $3,400 per ounce, allowing investors to consider long positions. Conversely, if the data proves to be strong, the precious metal will continue to fall towards $3,100.
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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