When central banks tighten their monetary policies, stocks and gold suffer. In 2022, thanks to the high demand for safe-haven assets because of the conflict in Ukraine and soaring inflation, gold is trying to get rid of these dependencies, but weakening support from geopolitics is dragging it down.

Bulls coped with the strengthening US dollar and rising Treasury yields for a long time, but as soon as real debt rates went up, they gave up. The fact is that the outstripping dynamic of yield over inflation expectations creates an extremely unfavorable background for the precious metal. Such movement of indicators shows that the Fed is going to aggressively tighten its monetary policy, which leads to a sell-off in the XAU/USD.

According to Deutsche Bank, the Fed would have to raise rates to 5-6% to cope with the highest inflation in four decades given it stayed below the 1% mark for a long time. The widening yield difference between US bonds and debt securities of other countries leads to capital overflows to the United States and a stronger US dollar, which harm the precious metal.

Gold and USD index price change

The recent increase of the USD index back to its highest levels since March 2020, when the Fed began flooding the markets with cheap liquidity and cut rates sharply to fight the recession, dragged gold to $1900 from $2000 within days.

In such an extremely unfavorable situation for gold, what can save it or at least slow down the bearish sentiment? In my opinion, it is a rise in oil prices. The rally of oil at the beginning of the conflict in Ukraine was seen as an inflationary factor. Concerns about the run-up in consumer prices forced investors to buy up gold-oriented specialized exchange-traded funds products, which eventually affected the XAU/USD. Will the same story happen again?

Oil and gold price changes

I believe that gold can count on a correction with oil only. At the initial stage of the conflict in Ukraine, investors were driven by fear, now it has subsided a bit. The markets are adapting to the new reality and are unlikely to buy ETF products with the same enthusiasm. In addition, you have to understand that the decline in the S&P 500 is forcing traders to open positions in stocks, which requires selling other assets. And precious metal is one of them.

Technically, on the daily chart, the Fakeout-Shakeout pattern was formed, which allowed us to open short positions from $1930. At the moment, there is a formation of the Widening Wedge pattern. After the fall of the quotations below the March low, point 5 was formed. It may be low, but then we should expect a pullback to the levels of 23.6%, 32.8%, and even 50% of the wave 4-5. The rebound from them will allow us to increase the sales.

Gold, daily chart