The victory of the democrats in the midterm elections in the US will increase the risks of the vote of no confidence in Donald Trump
Experienced investors know when the media forgets about the asset, it's the best time to look at it. The media are sensitive to the sharp movements that draw attention of readers, but they only write about it when the ship has already sailed. In order to earn, you need to anticipate events, remember that trends are replaced by consolidations, and trade corridors give way to new trends. In this regard, the gold, which during the last month has been squeezed in the range of $ 1185-1215 per ounce, deserves some attention. The metal is asleep, but it will probably wake up.
Over the past two years, gold has enjoyed making fun of the analysts. In early 2017, the market was full of bears who believed that Trump would quickly implement his idea of tax reform, which would accelerate the economy and inflation and force the Fed to aggressively raise rates. Nevertheless, the first failures of the president in the Congress allowed the precious metals to have an impressive start. It is curious that trade on reflation worked out after almost a year and a half, when the market was full of ... bulls. They argued that trade wars would harm the dollar, lower the yield on Treasury bonds and allow the XAU/USD to continue the rally. They did not.
If we assume that the time lag will continue to work, and the world economy will feel the consequences of the US-China trade conflict after 12-18 months, then in the first half of 2019 gold will again be in bloom. However, in the next quarter there may be a force majeure that will force the speculators with record-high net shorts to close them. For example, the victory of the democrats in the midterm elections will increase the risks of impeachment. From time to time, Donald Trump threatens the collapse of the stock markets in the case of such a scenario. Judging by the dynamics of the rating of the president and the S&P 500, he certainly has a higher opinion of himself than the financial markets do. However, a vote of no confidence can be a catalyst for a large-scale correction of stock indices and increase the demand for safe haven assets.
The dynamics of the S&P500 and the rating of Donald Trump
Source: JP Morgan, ZeroHedge.
I do not think that the escalation of the political crisis in Italy will be able to provide serious support to gold. Rather, on the contrary, sales of local assets will weaken the euro and will contribute to the growth of the USD index. But it was the strong dollar that became the source of all the troubles of the precious metal in April-September.
The Fed with its rate increase is different. The pattern in the form of the fall of the XAU/USD on the eve of the FOMC meeting, at which the central bank tightened monetary policy, followed by the restoration of the asset's position, had a malfunction only in June. Until then, the principle "sell on rumors, buy on facts" worked out perfectly.
Dynamics of gold and the Fed rates
Source: Trading Economics.
In my opinion, medium- and long-term prospects for precious metals are bullish. For a short time, you can try to play on the factor of the FOMC meeting. The drop in quotes below $ 1185, followed by a return to the middle of the trading range $ 1185-1215, or a breakthrough of its upper limit should be used for buying.
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Price chart of XAUUSD in real time mode
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.