December was the best month for gold over the past two years. Futures quotes reached 6-month highs due to the collapse of global stock indices, disabling the US government and increasing fears about a slowdown in global economic growth. First of all, this concerns Asia, where China's problems affect all countries in the region. Business activity of the Middle Kingdom fell below a critical 50, which indicates a potential recession. However, the US GDP is unlikely to boast similar success in 2018.
The loss of speed in the US economy, paired with the reluctance of inflation to move away from the target of 2%, makes it possible for the Fed to pause in the process of normalizing monetary policy. If four increases in the federal funds rate allowed the USD index to be marked by the best dynamics since 2015, then the loss of an important trump makes the dollar's prospects bearish. The inverse correlation of the "American" with the precious metal suggests that the XAU/USD rally of 1300 will not end. Fans of ETF products do not tire of increasing stocks of specialized exchange funds as they seriously count on the continuation of the northern gold campaign.
Gold dynamics and ETF stocks
However, we are talking about medium and long-term prospects. In the short-term investment horizon, the gradual stabilization of stock indices and the successful resolution of the issue of the temporary suspension of the work of the US government increase the risks of a gold correction. Donald Trump called on the Democrats to make a deal, as he understands perfectly well what a simple executive authority for GDP can turn into. According to Standard & Poor's estimates, each week will cost $ 1.2 billion, so the longer the government does not work, the worse it will be for the economy.
It is doubtful that the statistics on the States worsened at one moment. The Financial Times believes that the fiscal stimulus will continue to support GDP in the fourth quarter by approximately 1 percentage point This means that indicators coming out in January-February, will most likely please the eye as before. Against the background of the weakness of the eurozone, this allows us to count on the return of interest in EUR/USD sales, which, in turn, will somewhat cool down the fervor of bulls on XAU/USD. However, the situation may change radically since the second half of February. Traditionally, bad weather and the fading effect of tax reform will make a whipping boy out of "American".
I do not think that the S & P 500 and other US stock indices will fall as rapidly as in December. The economy is still strong, rates are low by historical standards, and the growing likelihood of a long pause in the process of normalizing the monetary policy of the Fed will return the bulls to the stock market. The precious metal may lose key growth drivers, which increases the risk of a correction.
This is confirmed technically. On the daily chart, gold reached a target of 200% using the AB = CD pattern. As a result, the probability of a rollback towards $ 1262 and $ 1250 per ounce has increased. Rebound from important support levels makes sense to use for the formation of long positions.
