Will gold be able to rewrite the historical highs reached in early August? Or will we see a repeat of the history of 2011, when the precious metal broke the "bullish" trend due to the inability of inflation to accelerate properly and fell in the direction of $ 1000 per ounce for a long time? Opinions are divided on this point. Central banks became net sellers of gold by 12.3 tons in the third month of summer, which suggests that they do not expect to restore the upward trend and prefer to sell the asset above the $ 2000 per ounce mark. According to the World Gold Council, their demand for precious metals will decrease in 2020 from 650 tons to 200-300 tons.

ETF stocks, on the contrary, are actively growing. The indicator increased by 18.5 tons in the week to October 2 and returned to the area of historical highs. Fans of specialized exchange-traded funds do not pay attention to the XAU/USD correction and use pullbacks to increase stocks. According to Invesco, in the conditions of ultra-soft monetary policy of the main central banks of the world, low profitability of the global debt market and fears about the second wave of COVID-19, gold is an excellent tool for portfolio diversification and its protection from various risks.

Dynamics of gold prices and ETF stocks

Pressure on the precious metal is exerted by growing political uncertainty in the run-up to the US presidential election. Despite the status of a protective asset, investors prefer the dollar to gold, however, this situation is unlikely to last long. TD Securities notes that, regardless of which party wins, gold will be able to benefit. Donald Trump intends to give America an additional fiscal stimulus after his victory, however, Joe Biden is not going to save money. The United States will smell reflation very soon and this is a very favorable environment for the "bulls" on XAU/USD.

In my opinion, a more serious impetus for the growth of the precious metal will be the victory of the Democrats. It will reduce the likelihood of a renewed trade war with China and most likely eliminate investors' dependence on the President's Twitter feed. Donald Trump's frequent change of mood has repeatedly led to turmoil in financial markets, which has increased demand for the US dollar as a safe haven asset.

Along with the medium-term weakness of the "American", gold will be supported by a decrease in the real yield of US Treasury bonds. Nominal rates on them will not go far north, they will be restrained by ultra-soft monetary policy, which the Fed is unlikely to abandon before 2023. At the same time, the acceleration of inflation expectations and inflation will serve the XAU/USD bulls well.

Dynamics of the Fed rate and US Treasury bond yields

Thus, in contrast to 2011, the current medium and long-term prospects for gold look "bullish". In the worst case, it will enter a state of long-term consolidation in the range of $ 1800-2020 per ounce. In the best case, it will rewrite historical highs. Based on this assumption, traders should buy the precious metal on the breakout of resistance at $ 1915-1920 or on the rebound from support at $ 1840-1850 and $ 1810-1820.

Gold, the daily chart