Jerome Powell's pigeon rhetoric at the press conference following the FOMC's January meeting, rumors of a pause in the process of collapsing the Fed's balance sheet and fears about the fate of the global economy pushed gold futures to May. The precious metal is preparing to close in the green zone for the fourth month in a row and gradually licks the wounds received in 2018. Then the aggressive monetary restriction of the Federal Reserve, the acceleration of US GDP and a strong dollar seriously spoiled the mood for the bulls at XAU / USD. In 2019, the situation has seriously changed.
Gold dynamics
The Fed chairman realized the mistake he made in December when, after raising the federal funds rate from 2.25% to 2.5%, he declared that the US economy was in good health, which meant continuing the cycle of monetary policy tightening at the same rate (4 rate increases for year). Stock indexes collapsed, and investors had to reassure statements about the flexibility and patience of the Central Bank. Judging by the survey of experts from Bloomberg, he is unlikely to resort to the next act of monetary restriction before June. As a result, the chances of gold to continue the rally increase. According to 36 Reuters economists, its average price in 2019 and 2020 will be $ 1305 and $ 1350 per ounce.
Along with the expectations of a long pause in the process of normalizing the monetary policy of the Fed, support for the bulls at XAU / USD has concerns about the fate of the global economy and the associated improvement in demand for a physical asset. Leading indicators show that China's GDP after the saddest dynamics over the past three decades last year continues to slow down in the first quarter, which boosts Asians 'interest in gold. In particular, Switzerland reports an increase in deliveries of the analyzed asset to the Middle Kingdom in 2018 to 431 tons, which is 38% more than in 2017. The stocks of specialized exchange funds from the October bottom increased by 4 million ounces (+ 7.6%).
The slowdown in the global economy is forcing central banks to either pause in the process of normalization or follow an ultra-soft monetary policy. In particular, the Fed is not set to raise the rate for more than two years in 2019, the ECB is unlikely to increase the refinancing rate before 2020, the Bank of Japan will continue the quantitative easing program, and the People's Bank of China will increase its monetary stimulus. In such conditions, the global debt market rates will be under pressure. If they were to grow on expectations of a tightening of monetary policy, prices for non-interest-bearing gold risked falling.
In the short term, the precious metal can be characterized by mixed dynamics. It grows on the expectations of Jerome Powell's pigeon's rhetoric, but if the market does not wait for it, speculators will begin to take profits. Accelerate sales will contribute to a strong report on the US labor market in January.
Technically, the rally of gold continues. "Bulls" activated the AB = CD pattern and are seriously determined to fulfill its target by 261.8%. It corresponds to the mark of $ 1337 per ounce.
Gold, the daily chart
