When Fed officials are increasingly talking about uncertainty and are not going to raise the federal funds rate before 2023, and the market is full of rumors about a double recession of the US economy, gold has no choice but to grow. The most actively traded COMEX futures with an expiration date in August have already reached $ 1800, and according to Commerzbank, the precious metal on the spot market will do the same very quickly. However, there will be a period of reassessment of its capabilities. To continue the XAU/USD rally, a further fall in the real yield of US Treasury bonds is required, which is not an easy task. The rates on them are already negative.
In April-June, gold managed to strengthen by 13%, which was the best result in the past four years. In contrast to the beginning of 2016, when the precious metal bounced up after six quarters of continuous decline, this time it does not tire of growing for seven consecutive quarters. Market conditions have changed significantly under the influence of trade wars, COVID-19, the recession, and aggressive monetary expansion of the world's leading central banks.
Quarterly dynamics of gold
From a fundamental point of view, the W-shaped recovery of the US economy will light the green light for the US dollar, which will be extremely unpleasant news for the "bulls" for XAU/USD. It is unlikely that the Fed in this scenario will be able to give financial markets more than it has already given. However, while the double recession has not happened, gold attracts investors like honey to a bear.
The huge monetary stimulus does not allow the US dollar to grow even against the background of the reduction of the Fed's balance sheet for the last two weeks in a row. This is most likely due to the effectiveness of currency swap programs.
Dynamics of the Fed's balance sheet
Investors are looking forward to the publication of the minutes of the last FOMC meeting and the release of data on the US labor market for June. According to Bloomberg experts, employment may grow by 3 million, which will increase the likelihood of a rapid recovery in the US economy and theoretically deprive gold of such an important trump card as the falling real yield of Treasury bonds. However, in this scenario, the dollar will probably suffer, so it is unlikely that the XAU/USD correction will be deep. As for the protocol, the talk about the Federal Reserve targeting the yield of debt obligations, at first glance, should warm the ears of fans of the precious metal. Gold does not need this right now. Bond rates are already falling.
The impressive XAU/USD rally was not ignored by major banks and investment companies. Citigroup raised its forecast for gold by 3 months to $ 1,825 per ounce, and TD Securities believes that the precious metal will soon change the main driver of growth. If it is currently being bought as a safe-haven asset, then later it will be purchased as a hedge against the risks of accelerating inflation. Formed in early June from the $ 1675 level, the longs will soon reach the target for the AB=CD pattern at $ 1830. Those who did not take advantage of my recommendation can only hope for a pullback to $ 1765 and $ 1745 per ounce, where the precious metal should be bought.
Gold, the daily chart