The yellow metal has always served as a symbol of security, justifying its status as a safe-haven. Until recently, it was used intensively in the market, tossing up new incentives for growth. However, now the situation is changing, and it may not be in favor of precious metals, experts warn.
According to some analysts, a correction has ripened in the gold market, which inevitably occurs after an impressive price growth. The precious metal showed excellent performance, trading at six-year highs, but now there are changes that could lead to its decline. Further dynamics of gold will largely depend on the outcome of trade negotiations between the United States and China and the implementation of the quantitative easing policy (QE) by the Federal Reserve.
A preliminary interim agreement between Washington and Beijing slightly lowered the degree of trade confrontation, which was not slow to affect the cost of precious metals. Reducing tension does not require a premium for geopolitical risk, which was added to the current price of gold. Experts recall that the key driver of growth in the price of precious metals was the trade conflict between the United States and China, the echoes of which affected both Hong Kong and the Middle East.
According to experts, the receipt of new information about a potential trade agreement provokes increased sales in the gold market. However, experts do not expect large-scale liquidation of long positions in gold, rightly believing that so low - less than $1,400 per troy ounce - the price of precious metal may not fall.
Currently, another, more powerful driver for the growth of the precious metals market has loudly announced itself - the Fed's position, which plans to conduct QE. At the same time, the regulator carefully circumvents this term in its statements, focusing on the normalization of the monetary balance. Over the past few months, the Federal Reserve has insisted on reducing its balance to $3.5 trillion, but in September it sharply curtailed this process, not reaching the target level. Recently, Jerome Powell, head of the Fed, announced plans to buy up $75 billion in assets every month, which also could not help but affect the price of gold.
The reason for the sudden changes in the policy of the regulator was a comprehensive panic that gripped the US interbank repo lending market. Recall that last month overnight rates in this market soared to 10% per annum. Experts have recorded a sharp jump in demand for dollar liquidity, which is many times higher than the supply. The central bank had to intervene so that the interbank lending market is not paralyzed, analysts said. They believe that the September surge is the start of a massive panic in the debt market, which is similar to a time bomb.
Statements by the heads of leading central banks add fuel to the fire. For example, Klaas Knot, the head of the central bank of the Netherlands, is certain that in the event of a collapse of the global financial system, it will be gold that will become the basis for its restoration. In the literal and figurative sense, precious metals play the role of a "brick", the building material from which a new system will be formed in the future. The Dutch regulator considers gold an anchor of confidence for the financial mass of the planet. "Precious metal gives confidence in the strength of the balance sheet of the central bank," K. Not said.
In this situation, the yellow metal really became a litmus test, fixing the level of trust in the system. It turns out that the lower this level, the more often there is a desire to withdraw their assets from the banking system. Investors and traders perceive gold as a tool for storing capital outside the system, and the further it is from it, the calmer it is.
This week, experts expect a continuation of the downward trend. The market is bearish. Last week, an entry point for a sell on the rebound formed on the precious metal market. Short positions on gold remain relevant, as long as the market is below the nearest resistance level of the daily timeframe. Large market players are actively selling precious metals. Gold is currently trading near $1,500 per ounce. In the morning, the yellow metal was at $1,499 per ounce.
In the medium term, analysts expect a new phase of strong growth in gold prices. If this scenario is realized in the next 1.5 years, the yellow metal will test the levels of $1900–$2000 per ounce, analysts said.
