Weakness of the US dollar allowed gold, for the first time since mid-October, to touch the psychologically important mark of $1300 per ounce. The precious metal has grown by almost 13% since the beginning of the year, marking its best result since 2010. It is on track to end November in positive territory following two months of a gradual decline due to the renewal of the Fed's fears about the persistent unwillingness of inflation to move to the 2% target. Representatives of the Central Bank argue that the indicator may be below the target benchmark longer than initially thought. In such conditions, the advisability of further tightening of monetary policy seems dubious, and low rates of the US debt market allow the "bulls" for the XAU/USD to organize periodic attacks.
Dynamics of gold,% since the beginning of the year
Source: Bloomberg.
The success of gold in late autumn is due to uncertainty about the outcome of the vote in the US Congress on tax reform, geopolitical tensions in the Middle East and around North Korea, as well as the political crisis in Germany. Angela Merkel still has not managed to create a coalition, which preserves the risks of a repeat in elections. Pyongyang launched another ballistic missile, and the implementation of fiscal stimulus in the United States is in question. In such turbid waters, investors prefer to diversify portfolios in favor of safe-havens, which is favorably reflected in the positions of bulls in the XAU/USD.
The increase in interest in precious metals is clearly visible in such indicators as the growth in the volume of trading on COMEX by 52% compared to its average values, the growth of the total open interest for three consecutive quarters (the longest series since 2009), and the achievement of ETF stocks to peak marks since the beginning of the year. At the same time, the decline in Chinese net imports from Hong Kong in January-October to 561.4 tons (-108 tons) indirectly indicates gold flows from the East to the West, which is one of the signs of a "bullish" trend. In 2013, during the collapse of prices, the reverse process took place.
The offensive rush of bulls on the the XAU/USD is impeded by positive US macroeconomic data, the growth of hopes for the implementation of the tax reform and the moderate "hawkish" rhetoric of Jerome Powell. Within five minutes, the upcoming head of the Fed said that the slow normalization of monetary policy in a strong labor market and the economy will help diffuse inflation. As a result, the Central Bank will be forced to act more aggressively than at present, which will bring the US closer to a recession. Let me remind you that at present the fixed-term market expects two rate increases in 2018, while FOMC plans to consider three. If CME futures starts to raise chances, the dollar will be in demand.
The dynamics of gold can affect the release of data on European inflation. Disappointing statistics will help to weaken the euro, which is a bullish factor for the USD index and bearish for the XAU/USD.
Technically, a break of resistance at $1302 per ounce will increase the risks of implementing the "Dragon" pattern and the probability of a recovery of the uptrend.
Gold, daily chart
