The strengthening of the US dollar has forced the bulls to flee the field of battle in a panic on the XAU / USD pair. Quotes of gold fell below the psychologically important $ 1,300 per ounce against the background of Janet Yellen’s «hawkish» rhetoric and the Republican form of the state of preparation for the voice details of the tax reform. The latter can disperse the us economy to 3%, which will strengthen the global appetite for risk, and deal a serious blow to the reliability of its assets.
The head of the Federal Reserve urged investors to understand the normalization of monetary policy. If, now, we are counting on slowing inflation, in the case of recession, the Central Bank will not have enough margin of safety for the defeat. In fact, it is one thing during the economic recession that occurred at the time of the conclusion of the federal funds rate at the level of 3-3.5%. This is another of the things, if she wanders to close to 1%. What to do? — We return to the use of non-conventional measures of monetary policy in the form of QE? After all, the Fed’s balance sheet is already swelling and the risk of its further hike will lead to an increase in side effects.
The increase of the probability of the December monetary restriction to 78% became a serious blow to the position of the supporters of a precious metal. In the week of September 19, the reduction of the net short was because of the closure of long positions. During this time, the value of the courts has remained virtually unchanged. During the last five days of September, the new sellers entered the market.
The dynamics of the speculation on gold
Source: CFTC, Bloomberg.
However, the «bulls» for XAU / USD still has no intention of falling to his knees. Commerzbank notes that the request for a physical asset remains strong, and the central banks, led by the Russian and Turkish regulators (+16 tonnes and 6 +tons in August) continue to buy gold. Mitsubishi pays attention to the fact that in the context of the «hawkish» rhetoric of the representatives of the Fed, the cost-effectiveness of the 2-year U.S. Treasury bond has increased to a maximum since 2008. As a result, the yield curve has stopped. Investors fled to short-term anti-risk of long-term debt securities, which may be considered as a positive factor for gold.
In my opinion, the analysis of the asset is going to find support from time to time thanks to the geopolitical factor. In addition, the potential to decrease the XAU / USD offers are limited by the ceiling of the indicators such that the probability of the Fed tightening monetary policy in December. Indeed, it is unlikely that the chances for an increase in the federal funds rate to rise above 94-96% before the last meeting of the FOMC this year. This means that, for more than 2 months, they will go a little more in the last two decades.
After having accused the united states of the declaration of war, North Korea is able to launch a missile at any time. This will immediately return the interest of the investors towards safe havens. Not to mention that the beginning of full scale military operations and the implementation of the promise of Donald Trump to clear a dangerous regime from the face of the earth can also stimulate the gold.
Technically, the break of the lower border of the rising trading channel the result of the retest indicates that the initiative is in the hands of the «door». If they manage to storm the support at $ 1280 per ounce, the risks of developing a correction towards $ 1260 and $ 1,250 will increase significantly.