Strengthening of global appetite for risk and the stabilization of the US dollar cooled the hotheads of bulls for gold. The precious metal could not once again break above $1365 per ounce, and its fans preferred to retreat. Are they preparing a new attack or are afraid that the increase in the probability of four federal fund rate increases in 2018 to more than 40% is a valid argument for a correction?
If one of the main "doves", FOMC president of the Federal Reserve Bank of Chicago, Charles Evans, expresses confidence that inflation will be secured near 2% within a year, and the Fed should gradually normalize monetary policy, it is clear what the others think. Markets are 88% certain that the Central Bank will tighten monetary policy three times this year, but this factor has already taken into account the quotations of the USD index and does not render it significant support. Another matter is the increase in the probability of four acts of monetary tightening to 42%. This trump card continues to play on the side of the "greenback especially against safe haven assets in the face of the Japanese yen, the Swiss franc and gold.
Dynamics of gold and the US dollar
The precious metal does not feel much support from trade wars, protectionism in general, and geopolitics. China is ready to make concessions, as it understands that the US has more significant weapons in the trade conflict. China presented its plan to liberalize the access of foreigners to the local market. Previously, non-residents could not own more than 50% of the shares of companies that produce cars. By 2022 this prohibition will become history. As a result, the risks of trade war are declining, which leads to an increase in world stock indices. For such a safe haven asset, like gold, it is not the best news. Moreover, the IMF is optimistic about the prospects of the global economy and predicts its growth at the level of 3.9% in 2018, which is the best result since 2011.
Donald Trump's statement about the allegedly competitive devaluation of the ruble and the yuan was seen by financial markets as a verbal intervention, but US Treasury Secretary Steve Mnuchin tried to convince investors that the president did not want to weaken the dollar in this way. Coupled with strong industrial production statistics for February-March, neutral rhetoric of the "dove" Charles Evans, and the conviction of five minutes from the president of the Federal Reserve Bank of New York, John Williams, that the yield curve will not go to the red zone (read, the US economy will not come to a recession), Munchin's speech played into the hands of "bulls" in the dollar, forcing gold buyers to think three times before continuing the attack.
At the same time, it is difficult to call a precious metal position vulnerable. According to Commerzbank, ETF stocks in April rose by 36 tons, which is almost twice as much as in March. Investors against the background of growing risks of increasing the volatility of financial markets are emerging from the assets of developing countries and are increasingly looking at gold.
A breakthrough of the resistance at $1357-1362 per ounce will open the way for bulls to target 127.2% and 161.8% for AB = CD patterns.
Gold, daily chart
