Gold has returned to its original positions from which it began in 2021, thanks to the faith of financial markets in the Fed's passivity. FOMC officials unanimously urge investors to be patient, and the New York Fed's forecast that the Central Bank's balance sheet will grow from the current $7.9 trillion to $9 trillion in 2023 suggests that the largest buyer is not going to leave the bond market. Even if American QE fades into oblivion. Ultimately, the money received from the repayment of debt obligations needs to be invested somewhere. If so, growth in US Treasury yields will be difficult, which is good news for the XAU/USD bulls.

If we abstract from the Fed's monetary policy and imagine gold as an ordinary asset that becomes popular at a time of accelerating inflation, then the upward trend in the precious metal looks logical. The last time consumer prices in the United States exceeded the 5% mark was back in 1990 when most of today's investors did not even start investing. For decades, they have relied on stocks and bonds without worrying about accelerating inflation. The time has come to adjust trading strategies and include instruments in portfolios to hedge the risks of CPI acceleration.

Gold seems to be the best option. Is this why speculative net longs in precious metals have returned to their highest levels since January, and ETF stocks are growing by leaps and bounds in May after three months of continuous outflow? The increased demand from hedge funds and fans of specialized exchange-traded fund products is an explosive mixture, but, according to UBS, this will not keep XAU/USD from falling. The bank expects gold to collapse to $1,600 an ounce by the end of 2021 due to renewed growth in Treasury yields and the strengthening of the US dollar.

Trends in ETF stocks and hedge fund positions in gold

So far, a "bearish" scenario for the development of precious metals seems unlikely to me. However, the S&P 500 correction could change a lot. According to research by the Financial Times, in 8 episodes of excessively high inflation over the past 95 years, the stock index has fallen on average by 7% in real terms over 12 months. If the stock market crashes this time too, the deteriorating global risk appetite will bring back interest in the US dollar and put pressure on gold.

In my opinion, as long as the Fed is on guard and does not intend to allow a serious correction of stock indices, everything will be fine for the precious metal. Jerome Powell and his colleagues consider high inflation to be a temporary phenomenon, while the stabilization of the nominal rates of the US debt market leads to a drop in real bond yields and creates a tailwind for the bulls on XAU/USD.

Technically, the widening of the distance between the gold chart and the moving averages speaks to the strength of the upward trend. Prices are moving steadily towards the $2,020 per ounce target on the Wolfe Wave pattern. The bulls may have difficulties near the $1,940 mark, where the 2-4 line is located. The optimal strategy is to break away from the dynamic resistance in the form of moving averages and then enter the long.

Gold, Daily chart