Gold price is back in the middle-term trading range of $1185-$1215 per ounce
Gold bulls suffered great losses as the dollar lured back investors and the US stock indexes recovered. If in October the precious metal was rising in price in lockstep with the greenback because of correction S&P 500, then, in November, it has become an outsider because of an increase in global risk appetite. Speculators, having started to believe in the XAUUSD positive outlook, got into a trap. As a result, the gold price is down, back inside the previous middle-term consolidation range of $1185-$1215 per ounce. The false breakout of its top border together with the unfavorable environment increases the risk of the bears’ attack. Is the precious metal really hopeless?
Historically, the main drivers for the XAUUSD are the US dollar trends, Treasury real yield and the US stock indexes. The rise of the first two indices results from the expectations for the continuous normalizing of the Fed’s monetary policy. The odds of the Federal funds rate hike in December are rising again after the US midterm elections; thus badly affecting the gold quotes.
Dynamics of gold prices and the probability of the Fed’s rate increase in December
The greenback is going ahead everywhere. It uses the flaws of the euro (Italy’s political crisis), the pound (Brexit), the yen (improved global risk appetite and the divergence in monetary policies), and the Australian dollar (trade wars). In the present situation, investors see no alternative to the US dollar; so, the XAUUSD bulls’ positions are getting weaker. On the other hand, I don’t think either S&P 500 or 10-year Treasury yield will soon break through their all-time highs.
In my opinion, there are plenty of bearish drivers in the stock market. They include higher borrowing cost, resulted from the Fed’s monetary normalization cycle, the potential slowdown of US economy growth, U.S. worse corporate accounting, affected by the revaluation. There are problems in the US bond market. Trade wars and increased political risks (it is said, Democrats will try to cancel the tax deduction for the rich), end the US economic cycle, as well as the growing inflation rate can well put a strong pressure in the Treasury real yield; thus supporting the gold price.
Dynamics of gold price and the Treasury real yield
Therefore, I wouldn’t give up on gold ahead of time. The dollar is obviously promising, however, without the support from the US securities markets, it is going to face some problems. Once Italy and the UK reach agreements with the EU, and the US stocks are being corrected again, the precious metal will quickly play back the losses. My previous forecast, suggesting the gold price to be at $1265-$1270 in 2018, may seem to be too positive; however, the price drop provides a good opportunity to accumulate long positions for gold, as its middle-term and long-term outlook is bullish.
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Price chart of XAUUSD in real time mode
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