The fall in world stock indices and the yield of US Treasury bonds following Donald Trump's statement that he would raise tariffs from 10% to 25% on $200 billion worth of imports from China starting on May 10, were liked by the "bulls" on XAU/USD. Quotes of the pair rose to a three-week high, but fans of the precious metals are in no hurry to force the events. It is not known how the trade talks between Washington and Beijing will end. Any result will be ambiguous for gold.
Despite an increase in the XAU/USD on the forex market, there has been an overflow of precious metals from west to east in the physical asset market, which is more typical for bearish market conditions. Commerzbank notes that stocks of specialized exchange-traded funds fell below the psychologically important mark of 2000 tons for the first time since December. Outflow from ETF takes place during 9 of the last 10 trading days. In Asia, on the contrary, buyer activity is increasing. The People's Bank of China replenishes its gold and currency reserves for the fifth month in a row. In April, they increased it by 480 thousand ounces and reached the level of 61.1 million ounces. Import of gold by India has risen from 73 T in March, up to 121 T in April. At the end of the second month of spring in 2018, the figure was only 52.8 tons.
In light of the escalation of the trade conflict between the US and China, investors are actively buying bonds and safe haven currencies in the face of the Japanese yen and the Swiss franc, while gold is not in a hurry to grow due to fears that the trade war will slow down the growth of global GDP. Divergence in the economic development of the United States and the rest of the world according to last year's pattern will work on the side of the US dollar, which is a bearish factor for XAU/USD.
Dynamics of US dollar and gold
On the other hand, events can develop in a different scenario. The weakness of global demand will continue to contribute to a slowdown in US inflation. The Fed will be forced to lower the Federal funds rate, which will shake the position of the USD index and boost investors' interest in gold. The latter is quite sensitive to the monetary policy of the Federal Reserve, and the increase in the probability of monetary expansion in 2019 from 51% to 40% support the "bulls" on XAU/USD. According to Vice-Chairman of the Fed Richard Clarida, the derivatives market is inclined to lower rates not because of the health of the US economy, but because of the growing international risks.
Many investors are in no hurry to force events, as by the end of the week by May 12, the situation with the trade war is unlikely to clear up. If China decides to respond to the White House's increase in import duties with an eye for an eye, a tooth for a tooth, the risk appetite will continue to deteriorate. On the contrary, signing the agreement on the falling flag will return interest in profitable assets.
Technically, the daily chart of gold continues to implement the "Double bottom" and "Wolfe Wave" patterns. The target of the latest model is located near $1320 per ounce (projection from point 5 to line 1-4). A necessary condition for its achievement is the exit of futures quotes beyond the downward trading channel.
The material has been provided by InstaForex Company - www.instaforex.com