As soon as gold spread its wings, they were immediately clipped by rising US stocks and the dollar. The 90-day postponement for Huawei counterparties was regarded by investors as a certain thaw in US-Chinese relations. In addition, officials from the White House continue to assert that the deal will ultimately be concluded and the ambassador to China in the United States says that Beijing is ready to resume negotiations. Perhaps the situation is not as critical as is commonly believed?
According to JP Morgan, trade wars are a long-running topic. Already in summer and industrial production around the world will face another round of weakness, which will adversely affect stock indexes. Their rally from the beginning of the year looks excessive. Investors were too self-confident about the imminent termination of trade friction and completely forgot about hedging risks. In May, the situation radically changed. Even the growth of the S & P 500 forces them to increase the share of safe havens in case of unforeseen circumstances. In such an environment, the position of the yen and gold should improve.
Dynamics of gold and Japanese yen
What is happening at the end of May while it goes against the recommendations of JP Morgan? Donald Trump and his team managed to stabilize the stock market, which perceives the slightest positive as a reason for growth and is not particularly sensitive to bad news. At the same time, increasing political risks in Europe are putting pressure on the euro and the pound, helping to strengthen the USD index. The combination of a strong dollar and S & P is a deadly mixture for gold, but the precious metal problems do not end there.
According to Commerzbank, one of the reasons for the depressed mood of the bulls on XAU/USD is the weak yuan. China is the largest consumer of gold and the USD/CNY rally makes its import to the Middle Kingdom more expensive. However, judging by the activity of central banks, they may well compensate for the potential reduction in demand for precious metals in Asia. In April, the People's Bank of China and the Bank of Russia bought 15 tons each. Kazakhstan's gold reserves increased from 11.63 million to 11.79 million ounces, and Turkey's reserves by 50 thousand ounces.
Gold does not help even the next inversion of the yield curve. In May, the differential rates between 10-year bonds and 3-month bills once again slipped into the red zone. The indicator accurately determined the future recession from 1975. Nevertheless, the difference in the yield of 10 and 2-year securities has not yet been marked by negative values, which allows Bloomberg experts to shift the expected time of the decline of the US economy from 2020 to 2021.
Dynamics of yield curves in the US
In the short run, the XAU/USD dynamics can be affected by the contents of the minutes of the Fed and the ECB, as well as the data on European business activity for May and the results of the elections to the European Parliament. If under the influence of weak statistics and growing political risks, the EUR/USD pair drops to 1.1 while gold risks continuing the downward movement.
Technically, a breakthrough of the lower limit of the consolidation range of $1265-1310 per ounce will allow the "bulls" of precious metals to count on the implementation of target by 161.8% using the AB = CD pattern.
Gold daily chart
