Jerome Powell's confidence in the strength of the US economy and the stability of inflation caused gold quotes to collapse to the lowest levels for more than a year. The probability of four increases in the federal funds rate in 2018 increased to 63%, the yield of 3-month treasury bills for the first time since 2008 jumped above 2%, and stock indexes continued the rally. Against the backdrop of a strong dollar ahead of the dynamics of the rates of the US debt market over the rate of inflation and the high demand for risky assets, precious metals tend to feel inadequate.
Gold is heading for its fourth month of closure in the red zone. It lost about 10% of its value from the levels of the January highs and faces an 8-week outflow of capital from specialized exchange funds, the longest since 2014. ETF stocks fell to 69.4 million ounces, the lowest since March.
Dynamics of gold ETF stocks
Investors are not frightened either by trade wars or by the potential correction of stock indices. There were rumors on the market that more than 5% strengthening of the US dollar in April-June would worsen corporate reporting, as about 40% of US companies receive major revenues from abroad. In fact, 84.6% of 39 already reported issuers included in the S & P 500 calculation base showed better results than expected. This forced the experts of Reuters to raise the profit estimates in the second quarter from 20.7% to 21.2%. Growing global appetite for risk puts pressure on the assets of the shelter: along with gold, the yen also falls. Quotes USD / JPY reached half-yearly highs.
"Bulls" for XAU / USD are cornered, but some of them are not going to throw out a white flag. Thus, Citigroup believes that the further escalation of the US-China trade conflict and the associated slowdown in global GDP will allow the precious metal to find ground underfoot. Until now, financial markets have been careless about trade wars, but the latest survey of asset managers conducted by BofA Merrill Lynch showed that more than 60% of respondents consider this factor to be the most dangerous for stock indexes. BlackRock predicts a 10-15% drop in the S & P 500 in the event of the introduction of US $ 200 billion of import duties against China.
The main problem of gold is still a strong dollar. The flight of investors from the markets of developing countries, their confidence in the bright future of the American economy and the divergence in the monetary policy of the Fed and other central banks issuing currencies G10 give forces to the bulls at the USD index. He is quite capable of continuing the rally, but the potential of the northern campaign, in my opinion, looks limited. The EU and Japan decided to abandon import tariffs for 1 billion euros, which increases the likelihood of their economies recovering during the remainder of the year. If so, the chances for a normalization of the ECB's monetary policy will also grow.
Technically, gold at arm's length has come to the convergence zone $ 1207-1220 per ounce (targeting 88.6% and 200% for the Akula and AB = CD patterns), which increases the risks of rebound and formation of a consolidation range.
Gold, daily chart
