The FOMC meeting can bring the precious metals out to the operational space
The calm in the gold market has been on for almost a month. Sluggish movement around $1282-1308 per ounce is so boring that the popular media almost stopped writing about it. However, traders who have experience such instruments, on the contrary, are very interested. They know that the calm before the storm is a great time for meaningful formation of positions. Consolidations on the market are replaced by trends, and trend give way to range trading. This is life.
At first glance, the conjuncture of the precious metal market looks unequivocally bearish. The Fed will at least double the federal funds rate in 2018 and intends to raise it to 2.9% in 2020. This circumstance increases the risks of the continuing rally of the yield of Treasury bonds and the US dollar, which should be regarded as a negative factor for the XAU/USD. In January-May, Indian imports decreased by 42% y / y, and stocks of the largest specialized stock fund SPDR Gold Shares fell to 828 tons, which is the lowest mark since the end of February. Speculative net long positions for gold wander near the bottom from the beginning of last year.
Dynamics of SPDR Gold Shares reserves
Source: SPDR Gold Shares.
Dynamics of speculative positions in gold
At the same time, the decline in supply to India was caused by the devaluation of the local currency, domestic prices fell to Rs 30,500 per 10 g, and, according to Standard Chartered, the continuation of the peak would lead to an increase in demand. ETF stocks tend to react to prices, and as soon as the rate of XAU/USD goes up, the numbers of those wishing to purchase their products will multiply. Speculators naturally reduce their positions on the eve of important events - the publication of statistics on US inflation and the press conference of Jerome Powell following the June FOMC meeting.
It is curious that in three of the last four cases of the federal funds rate raise, the precious metal fell on the eve of the historic meeting, and then quickly eliminated the losses and restored the uptrend. The exception was the summer of 2017, but even then the joy of the bears was short-lived.
Dynamics of gold and the Fed rate
Source: Trading Economics.
In my opinion, the reasons lie in the final stage of the economic cycle in the United States. Investors have no doubts about the strength of the US GDP, this factor is already priced in the quotations of dollar pairs, while the principle "sell on rumor, buy on facts" for gold is more relevant than ever. I do not exclude the possibility of the greenback strengthening in the short term, but on the medium- and long-term horizon, the possibilities of the USD index bulls look limited. The metal traditionally acts as an anti-dollar, therefore, it should follow the strategy of purchases on recessions. Regarding the current situation, the preservation of a moderately pigeon rhetoric of the Fed following the June FOMC meeting will strengthen the risks of breaking through the resistance at $1308 per ounce, followed by a trip to $1325 and $1335.
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