Gold doesn’t like the thaw

Trading 06 nov 2019 Donner votre avis

If until 2019 the Fed's monetary policy was the main driver of changes in gold prices, then this year the growth in investment demand for precious metals was due to trade wars. According to studies by the World Gold Council, the volume of interest of institutional and retail investors in the third quarter amounted to 408.6 tons, which is more than twice the result of July-September 2018. Demand for ETF products is estimated at 258 tons, gold bullion at 150 tons and coins.

Against the backdrop of the XAU/USD rally to 6-year highs, experts began to give "bullish" forecasts, setting the price at $ 2,000 per ounce, so it is not surprising that stocks of specialized exchange-traded funds rose to a record 2855 tons. The largest ETF SPDR Gold Shares from January to September saw an inflow of $ 6.5 billion. Nevertheless, in the second half of the autumn, the situation in the field of trade wars radically changed, which increases the risks of the development of a correction to the "bull" trend in precious metals.

Washington and Beijing are approaching the signing of the "Phase 1" agreement, which provides for increased purchases of US agricultural products, consolidation of intellectual property rights, a currency pact, and easier access for US companies to the Celestial market. In return, the US is committed to lifting some of the previously imposed tariffs, as well as not raising or introducing new ones. The Chinese yuan is rapidly strengthening, and this currency is a kind of indicator of the degree of the trade conflict between Washington and Beijing. Its close correlation with XAU/USD makes it clear that it is the trade war that is the main driver of the change in the price of gold, and not the Fed with its reduction in the rate of federal funds.

Dynamics of gold and Chinese yuan


Positive macroeconomic statistics for the United States add fuel to the fire of sales of precious metals. GDP in the third quarter grew by 1.9%, rather than 1.6%, as Bloomberg experts expected. Employment outside the agricultural sector almost doubled forecasts, pleased with business activity and trade balance. The negative balance of the latter has dropped to its lowest level since April, and rumors have intensified in the market that the protectionist policy of Donald Trump is yielding results – the state of US foreign trade is improving.

The positive from macrostatistics contributes to the strengthening of the dollar and the growth of US Treasury bond yields. If you add to this the high global appetite for risk and the proximity of stock indices to historical highs, it remains to be wondered why gold does not roll down like a snowball? Perhaps investors doubt that Donald Trump and Xi Jinping will sign the agreement. This has happened more than once: the parties take a step towards each other and two steps in the opposite direction.

Technically, on the daily chart of the precious metal, the formation of the "Splash and shelf" pattern continues. Breaking the upper limit of the trading range of $1475-1515 per ounce will strengthen the risks of price growth to $1580 (target on Wolfe Waves). On the contrary, a successful storm of support at $1475 will contribute to the development of a correction to $1440-1445.

Gold, the daily chart


The material has been provided by InstaForex Company -

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