Buying gold on the back of several fundamentals

Gold as a safe haven asset is likely to get an additional stimulus to growth after another aggravation of the situation in the Middle East, associated with the attack on the U.S. military base in the north-east of Jordan.

Technically, confirmation of a probable strengthening of XAUUSD is the untested price level of $2050. The quotes overcame this level on January 16 with a rapid downward movement and went towards the $2000 mark. After that the price returned to the middle of the range. So now the most probable scenario is the upward movement back to $2050. Another round of escalation, which will be caused by the U.S. response, may trigger a sharp strengthening of gold.

Closely related to the gold rate, the Australian dollar has already strengthened since Monday morning, which may indirectly indicate the further trajectory of XAUUSD.

Another driver, in addition to rising geopolitical tensions, is the competition between countries to lower interest rates that has already begun. This will lead to a decline in Treasury bond yields and capital flows into more profitable sectors and instruments, including gold.

At the same time, against the background of the global easing of monetary policy, one should expect the continuation of inflationary pressure, although not significant, but still playing its negative role, which itself increases the value of other tangible assets via currency revaluation. That is, with the average annual consumer inflation of 5%, gold will rise in price against the dollar by the same value.

In addition to the above factors, it can be noted that the stock market in the U.S. and Western Europe has grown strongly. Usually such a rapid growth is followed by a correction, which will also be a reason for preserving the capital and transferring it to safe haven instruments.

The overall recommendation is to buy XAUUSD with the target at the level of 2050.

A loss on XAUUSD purchase should be fixed at the level of 2000.