Gold is unlikely to guess what the Fed’s intentions are, but in any case it will not lose

Trading 10 juil 2019 Donner votre avis

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Gold has stood on the verge of the longest weekly winning streak since 2011. However, after the release of a strong release on the US labor market for June, the precious metal exchange rate slumped by more than 1.6%.

The increase in the number of jobs in the US economy by 224 thousand reduced the likelihood of reducing the federal funds rate at the July Fed meeting by 50 basis points, from 40% to 8%.

It should be noted that gold is sensitive to the Fed's monetary policy, since the latter has an impact on both the US dollar exchange rate and the securities markets.

The dovish rhetoric of the Fed, the weakening of the US currency, the fall in Treasury yields, the worsening global risk appetite, the growth of geopolitical tensions in the world are the main bullish drivers for the XAU/USD pair.

The decline in the yield of the world debt market and the weakness of the main currencies against the background of the readiness of the leading central banks to soften monetary policy are strong arguments in favor of buying precious metals.

Apparently, the further dynamics of gold will depend on whether the US central bank will lower the federal funds rate at the next meeting or not.

Along with strong data on the US labor market in favor of maintaining the rate of 2.5% was the growth of three-year inflation expectations from the New York Federal Reserve Bank in June (from 2.5% to 2.7%), which increases the likelihood of inflation to return to a reference point of 2%.

At first glance it may seem that the preservation of the former parameters of the monetary policy of the Fed is a negative point for gold. However, in fact, in this situation, US stock indices may sharply go down, which, by analogy with December last year, could lead to a rise in the XAU/USD pair.

Monetary expansion by the Fed is also a "bullish" factor for gold, because in this case the greenback will weaken, and the yield of Treasuries will continue to go down.

In addition, given the fact that the central bank has been receiving incessant criticism from the head of the White House, Donald Trump, the latter's desire to weaken the USD for the 2020 presidential election is growing every day.

Standard Chartered analysts point out that the dollar weakened after the work of the three previous US administrations had expired due to the effect of depletion of fiscal stimulus. They expect that by the end of D. Trump's presidential term, the USD index will be below the levels at which he was at the time of the 2016 elections.

Thus, in order not to be undertaken by the Fed in July, gold can benefit from this, which makes it possible to consider buying on the decline with a target of $1,470- $ 1,490 for 1 ounce on the horizon of 3-6 months.

The material has been provided by InstaForex Company - www.instaforex.com

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