The inability of gold bulls to cling to an important psychological level of $1,300 per ounce generates many opinions about the future prospects of the asset. "Bears" talk about the speculative nature of the XAU / USD rally, drawing attention to the fact that over the past five weeks, hedge funds and other investors have increased net longs on precious metals at the New York COMEX by a record 474 tons (about $ 19.3 billion ). Meanwhile, stocks of ETF for the same period decreased by 35 tons. Usually, both indicators go in one direction, confirming the strength of the trend.
ABN AMRO believes that in the near future, prices will begin to actively decline towards the lower limit range of $ 1200-1300 per ounce thanks to three drivers: first, strong macroeconomic statistics from the US that will support the dollar; second, the likelihood of an increase in the Federal Reserve rate for federal funds in 2017; and, finally, the dispersion of the risk of war between the States and North Korea.
BofA Merrill Lynch, in contrast, believes that gold will be able to rise to around $ 1,400 per ounce due to the following reasons: the inability of Donald Trump and his team to implement a package of economic reforms, growing risks of correction in US stock indices, and low interest rates on long-term US bonds. The correlation of the latter with precious metals inspires "bulls" in the XAU / USD pair for exploits.
Dynamics of the yield of US Treasury bonds and gold prices
Source: Bloomberg.
BofA Merrill Lynch also points to the strengthening of the euro amid the recovery of the eurozone economy. This puts pressure on the USD index.
Thus, the arguments of the opponents are clear. The further dynamics of XAU / USD will depend on which scenario of events will come to fruition. Hedge funds, which have increased their net longs in precious metals to their highest levels since October, believe in its bullish prospects while investors in ETF prefer a cautious approach.
In my opinion, a deep correction in the S&P 500 looks unlikely. The world economy, according to forecasts of Bloomberg experts, will accelerate from 3.1% to 3.4% in 2017. This will allow companies to generate profits not only from a weak dollar, but also from a strong domestic and external demand. Moreover, central banks are not going to deprive the market of cheap liquidity. The ECB, for sure, will extend the quantitative easing program in 2018, the Bank of Japan will continue to buy up assets, and the Fed will reduce the balance extremely slowly.
Geopolitics, as a rule, is not a long-lasting factor, unless, of course, the case ends in military actions. Few believe in the technical default of the United States and it's time for the presidential team to notice at least some success in implementing election promises. All this pushes the idea that the potential of the XAU / USD rally looks limited.
Technically, the drop in quotes below the support level of $ 1,280 per ounce will allow the market to talk about the implementation of the subsidiary and mother model, "Three Movements". Their combination is a serious argument in favor of correction towards the current uptrend.
Gold, daily chart
