Investors prefer to partially take profits after a violent rally in May-August, which raised gold to 6-year highs. It is not known how the financial markets and the US dollar will respond to the results of meetings of the ECB and the Fed, so it is better to play it safe and get out of some positions. However, even a 4% pullback did not change the overall picture: the external background remains favorable for the XAU/USD bulls, which means that it is too early to talk about a change in the uptrend.
Contrary to the desire of speculators to take profits and the associated pullback, ETF fans continue to build up stocks. Thus, the influx of capital into one of the largest specialized exchange funds IShares continues for the 13th week in a row. Although debt market rates are already low, investors believe they will fall even lower. In particular, Deutsche Bank predicts that the Fed will reduce the cost of borrowing by 1 pp by January 2020, and the ECB will delight speculators with a massive monetary stimulus in September. The derivatives market believes that Mario Draghi and his colleagues will reduce the rate on deposits by 0.1-0.2 percentage points and that they will resume bond purchases of €30-40 billion per month.
IShares Stock Dynamics
Loose monetary policy is a bearish driver for any currency and when major global monetary units are weak, investors prefer to increase the share of gold in portfolios. The current correction looks healthy, as does the majority's desire to buy precious metals on downturns. According to Citi's forecasts, it will rise to $2,000 an ounce thanks to active purchases by central banks. A combination of a slowdown in the US economy, monetary expansion of the Fed and uncertainty around the US presidential election in 2020. America is at the final stage of the economic cycle, and the dollar will weaken along with the recession and strengthened safe-haven assets.
Gold can quickly regain lost ground if Mario Draghi cannot give investors what they expect from the Central Bank at the September meeting of the ECB. If Super Mario follows the lead of the Governing Council "hawks", the euro will strengthen. The USD index will tear down while the XAU / USD will resume its northern campaign.
A favorable factor for gold is the Fed's position. The regulator is ready to tolerate inflation above the target in order to reverse the downward trend in inflation expectations, stimulate consumer activity and maintain the current path of GDP growth. The precious metal is traditionally perceived as an insurance against inflation, therefore, accelerating the base CPI to 2.3% in August should be considered a "bullish" factor for XAU/USD.
Technically, on the weekly chart of gold, there is a pattern of "surge and reversal with acceleration." As long as quotes hold above $1350 per ounce, the situation is controlled by the bulls. A short-term breakdown of the diagonal support at the surge stage near $1480 is possible. However, the precious metal is unlikely to stay below for a long time. It still has goals at the top in the form of targets for 161.8% and 88.6% according to the AB = CD and "Bat" patterns.
Gold weekly chart
