For the first time since November 2011, gold managed to break the $ 1,800 per ounce mark thanks to gloomy economic forecasts and the Federal Reserve's readiness to expand the volume of monetary expansion. FOMC Vice President Richard Clarida argues that the Central Bank's arsenal of ammunition is not exhausted, and the Fed's balance sheet has room to grow. This statement scared not only the "bulls" in stocks, who began to fear a double recession, but also fans of the US dollar. Easing monetary policy is a bearish factor for the US currency.

The growing risks of a W-shaped recovery in the US GDP, the difficult epidemiological situation in the United States, low rates of the global debt market and an unsure dollar are strong arguments in favor of buying ETFs. Stocks of specialized exchange-traded funds that work with gold have increased by 600 tons since the beginning of the year and exceeded retail purchases in India and China for the first time since 2009. In addition, about 700 tons were added to the vaults of American exchanges, which, due to the pandemic, faced a lack of physical assets necessary to fulfill obligations under futures contracts.

Dynamics of ETF stocks and retail gold purchases in India and China

At the same time, demand for precious metals in Asia has fallen significantly due to high prices and the closure of economies, and is likely to continue to do so due to the deterioration of the situation with COVID-19 in India. Gold flows from East to West, and when this happens, there is no doubt about the strength of the upward trend for XAU/USD. Theoretically, if investment demand is maintained at a high level, and the recovery of the Chinese economy returns buyers of jewelry to the market, the precious metal is able to update historical highs.

The conditions for continuing the rally are quite suitable. The Fed has provided financial markets with tremendous liquidity and seems ready to go further if necessary. US Treasury bonds are unable to compete with gold due to low rates, and the dim outlook for the US economy is fueling demand for safe-haven assets. At the same time, the actual inflation rate is most likely significantly higher than the official one due to the fact that many products were not purchased due to the pandemic. Getting out of lockdown will change the situation.

Official and actual inflation

The precious metal is traditionally perceived as a tool for hedging inflationary risks, while a further fall in the real yield of US Treasury bonds will lend it a helping hand. Let's not forget that the large-scale monetary expansion of central banks weakens the main world currencies, a good alternative to which is gold.

The precious metal is approaching the target of $ 1,830 per ounce for long positions formed from the $ 1,675 level. The June recommendations were effective, however, the weakness of the US dollar may send XAU/USD quotes even higher. In this regard, when reaching the target of 161.8% for AB=CD, I would close only part of the longs, and then increase them on pullbacks, the risks of which will grow due to the implementation of the "Three Indians" pattern.

Gold, the daily chart