The unsuccessful attempt of XAU/USD to restore the upward trend did not upset the bulls at all


The gold bulls took advantage of the decreasing probability of four increases in the federal funds rate in 2018 after the publication of the minutes of theFOMC March meeting and a favorable external background and tried to take by storm an important resistance at $1262 and go into operational space, but their opponents proved to be worthy as well. Despite the fact that official Beijing is ready to kick back, privately its representatives speak about the need for liberalization of financial markets and reduction of import duties on cars. The military strikes of the United States and its Syrian allies did not lead to a large-scale escalation of the conflict in the Middle East, and the increase in investment demand for precious metals is not able to single-handedly rebuild the upward trend for XAU/USD.

When you don't know what to do, buy gold. The mutual exchange of threats between Washington and Beijing and subsequent attempts by the US administration to smooth out the effect and calm the financial markets increased the demand for reliable assets. Standard Chartered points out that the inflow of capital to the ETF in April was 24.4 thousand compared to 47 thousand in the first quarter. Reserves of specialized exchange funds have almost reached $100 billion. The figure is still far from $150 billion, which took place in 2012, but its dynamics is an important argument in favor of the development of the bullish trend for XAU/USD.

Dynamics of gold-backed ETFs

Source: Bloomberg. 


Taking into account the fact that the precious metal is sensitive to changes in the real yield of US Treasury bonds, the results of the HSBC79 survey of central reserve managers show that there are rather serious risk factors for the analyzed asset. Three quarters of respondents called the interest rate increase by regulators in 2019 one of the most serious threats to the world's debt markets. 59% of respondents believe that this is the main risk factor. The yield of bonds will go up, and to continue the rally, gold needs the dynamics of inflation to be in the lead. So far, everything is going well: geopolitics and protectionism slow down debt rates, while the accelerating CPI in the US, Britain, Japan and in other countries allows XAU/USD to grow.

In my opinion, the main reason for the optimism of the fans of the precious metals is an increase in the probability of a recession in the US. The yield curve continues to thicken and wander near the lowest marks for the last ten years, which forces speculators to adhere to the bearish views on the US dollar.

Dynamics of the USD index and speculative positions on gold

Source: Bloomberg. 


In my opinion, gold will remain committed to using last year's patterns. 3-4 weeks before the FOMC meeting, which is likely to raise the central bank's federal funds rate, its quotes will fall. The futures market is giving out a 97.5% chance that this will happen on June 13. That means, until mid-May, investors have the opportunity to adhere to buying strategies on rollbacks or on the breakout of resistance. In particular, the repeated attack on the level of $1362 per ounce will increase the risks of implementation of the March forecast


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The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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