In the market, things that are often incomprehensible at first glance happens. And if the movement of gold and US stock indices in one direction already surprises few people, the violation of the inverse correlation between the precious metals and the US dollar puts to a standstill. The XAU / USD bulls feel comfortable around 6-month highs, even though the USD index soared to 5-week peaks. Will they continue on the same direction, although for decades, they walked in different directions?
Formally, the external background for gold can be called favorable. The victory of Boris Johnson in the fight for the post of British Prime Minister increases the risk of disorderly Brexit. The IMF reduces its global GDP forecast for 2019 to + 3.2%. In addition, tensions in the Middle East are not disappearing, and the United States and China are in no hurry to stop a trade war. On the other hand, the White House and Washington managed to resolve the issue of the national debt ceiling, and the US yield curve returned to the green zone, which reduces the possibility of a recession in the US economy.
At the same time, let us remember the 2018th: the political landscape in Britain has always been unsteady. The IMF constantly frightened investors with a crisis, and at the very height of a trade war, gold instead of growing, on the contrary, decline. The main culprit was named the American dollar, which in the conditions of monetary restriction of the Fed intercepted the status of the main asset-refuge from the precious metal and yen. As it turned out, the epic with the tightening of monetary policy was short-lived: the process of reducing the balance of the three leading central banks of the world took 11 months. After that, they returned to the idea of lowering rates.
Dynamics of asset purchases by leading Central banks
The sluggish growth of the world economy and the fashion for monetary expansion have led to the fact that about $ 13 trillion of the global bond market is trading with negative returns. It is better to buy non-interest-bearing gold than to bear the costs due to holding securities in the portfolio.
In addition, the strength of the dollar is deceptive. If in the previous years, the USD index grew due to the Fed raising the federal funds rate, now it is due to the weakness of competitor currencies. The ECB is going to soften monetary policy, the Bank of England has sharply turned from a "hawk" into a "dove", and the Bank of Japan claims that it has enough ammunition to stimulate the economy. The positions of the "American" look vulnerable: firstly, the Fed is ready to cut rates, and secondly, the White House may surprise Forex with currency interventions for the first time in many years.
Gold clearly benefits both bonds and major world currencies. As for stocks, concerns about the correction of the S & P 500 make investors extremely cautious about buying equity securities. If stock indices are growing solely because of expectations of the Fed's monetary expansion, while corporate profits are worsening and the economy is slowing, how long the rally can be?
Technically, the further fate of the precious metal will depend on the output of quotations from the triangle. The repeated breakthrough of its upper border with the subsequent updating of the July maximum will bring the target to 161.8% according to the AB = CD pattern at arm's length.
Gold daily chart
