What does the price of gold depend on? At first glance, the answer is simple—it depends on the cost of money. The lower central bank interest rates are, the cheaper they become. The more expensive the precious metal must be quoted. Conversely, in times of high interest rates, the XAU/USD pair should fall. At the same time, gold is an anti-dollar. The dynamics of the USD index often determine where the precious metal will move. Unfortunately, in 2023, historical correlations were disrupted, and only the September meeting of the Federal Reserve returned everything to its usual state.

Looking at how gold maintains stability in the face of rising real yields on U.S. Treasury bonds, investors involuntarily asked themselves why. Real yields are the cost of money. In a world of expensive money, precious metals should not feel comfortable.

Dynamics of gold and real yields of U.S. Treasury bonds

The same can be said for the dollar. It pleasantly surprised its fans, marking a 10-week winning streak amid the strength of the U.S. economy and the Federal Reserve's reluctance to allow a dovish pivot. Speculators en masse closed short positions on the U.S. currency, and the expectation of a government shutdown only fueled demand for it as a safe haven.

Nevertheless, gold ignored the extremely unfavorable external background until the end of September, which allowed for bullish forecasts. After all, if an asset doesn't go where it is expected to, it's more likely to go in the opposite direction. According to Macquarie, the precious metal can rise to $2100 per ounce if U.S. Treasury bond yields and the U.S. dollar decline. If you receive good news in adverse conditions, XAU/USD is capable of marking a swift rally.

Dynamics of gold and the U.S. dollar

To the disappointment of gold enthusiasts, positive news is not coming in. Investors are gradually getting used to the idea that high interest rates are here to stay for a long time. The cost of money has sharply increased and will remain so for an extended period. The precious metal loses its shine and begins to do what it should—fall.

In my opinion, the reasons for the stability of XAU/USD should be sought in China. Currently, premiums for bars in Shanghai exceed prices in London and New York by more than $100 per ounce. Gold in China costs more than $2000. The People's Bank of China started this process by avidly buying precious metals as part of the de-dollarization process. Then consumers picked up the baton. Due to the real estate market crisis, the weakening of the yuan, and strict capital controls, the population is buying gold.

Unfortunately, intermarket connections will sooner or later make themselves felt. The strengthening of the dollar and the rise in the real yields of U.S. Treasury bonds pushed XAU/USD below 1900.

Technically, on the daily chart, gold has the formation of a Shark pattern at 5-0. The target level at 161.8%, according to the latest model, is $1825 per ounce. Breaking support at $1895 will allow for the formation of short positions.