Renewed reflationary sentiment in financial markets has allowed gold to recover. US Treasury Secretary nominee Janet Yellen urged Congress to play big and endorse the $1.9 trillion fiscal stimulus project, and Joe Biden spoke of national unity during his inauguration, hinting that Republicans and Democrats must stand together in the face of a pandemic. As a result, the S&P 500 rewrote historical highs, the US dollar fell, and the bulls on XAU/USD launched a counterattack.

The medium and long-term prospects for gold remain bullish, which attracts ETF and futures buyers. Even successes in the fight against COVID-19, the exit from lockdowns, and the recovery of the global economy are unlikely to force central banks to take the first step towards normalizing monetary policy. Everyone understands perfectly well that in the conditions of a mountain of debts that keep growing, low-interest rates are necessary.

The surge in US Treasury yields at the start of January, which drowned gold, is seen as a temporary phenomenon. Yes, investors are dumping debt on expectations of an increase in issuance, but Treasury Inflation-Protected Securities (TIPS) continue to be popular, keeping their yields at record lows. As a result, the break-even rate rises - a measure of inflationary expectations. The precious metal is traditionally perceived as a hedging tool against inflation, so the resumption of the upward trend in XAU/USD seems to be a matter of time.

The weak US dollar is an important driver of gold growth. Some doubt that the downward trend in the USD index will continue in 2021. This is because, first, after the change of power in the US, the dollar lost such a trump card as the uncertainty associated with Donald Trump's tweets. Second, large-scale incentives fuel risk appetite, which negatively affects safe-haven currencies. Finally, during the inauguration, Joe Biden did not want to complicate things with China, while improving relations between Washington and Beijing will help restore the global economy.

Dynamics of gold and US dollar

Problems for US dollar sellers can only be created by slow vaccination and (or) mutations of viruses that will postpone plans to exit the world's leading economies from lockdowns and return interest in reliable assets. In this situation, gold risks falling into a new wave of sales.

In my opinion, criticism of the EU, where the speed of the vaccination campaign is poor (1.7% of the population vaccinated compared to 5% in the US), will force Brussels to act aggressively. As a result, EUR/USD will go up, the USD index - down, and the XAU/USD quotes can return above the 1900 mark.

Technically, the daily gold chart still has a Wolfe Wave pattern. It testifies to the significant potential of the precious metal rally since the targets of the model are located near $1990 and $2060 per ounce. A signal for buying will be breakouts of dynamic resistances at $1880 and $1890.

Gold, daily chart