Gold has chosen a trend

Taking off at 10% of the levels of the 18-month lows that occurred in August, gold held its horses. The current January could be the worst for it in the last 6 years, and a natural question arises for investors, will the precious metal be able to continue the rally? It has traditionally been used as a safe-haven and a hedge against inflation, but the slow dynamics of the latter and the increasing likelihood of ending the trade war between the United States and China force the bulls on XAU / USD to be cautious.

The impressive spurt of gold at the end of 2018 was due to the favorable environment for it. The US dollar, the yield of Treasury bonds and stock indices fell, the demand for reliable assets grew. At the same time, market rumors were spreading about the end of the economic cycle. The Wall Street Journal experts have increased the likelihood of a recession in the US economy by up to 25%, the maximum mark since 2011, and weak statistics from China and Germany suggest serious problems with global GDP. As a rule, in such conditions, interest in precious metals grows, as evidenced by the increase in reserves of specialized exchange-traded funds to 71.9 million ounces, which is slightly less than the record high of 72 million ounces that occurred in May 2018.

Dynamics of the yield of US bonds and gold

Gold ETF Stock Trends

Currently, despite a sluggish start, gold has no shortage of bullish forecasts. For example, Goldman Sachs expects to see it at around $ 1,425 per ounce for 12 months. The main arguments buyers say are the potential weakening of the US dollar and the fall in the US debt market rates. If the Fed makes a long pause in the process of normalizing monetary policy or terminates it (the forward market assesses the odds of a single increase in the federal funds rate in 2019 to a modest 17%), bond yields and the USD index are unlikely to be able to restore the uptrend. Pressure on them has the longest in the history of a government shutdown in the States. Fitch Ratings warns that delaying the process may lead to a downgrade of the country's credit rating.

Standard Chartered notes an increase in the activity of central banks in the area of buying precious metals. At the end of 2018, their gold reserves increased by 500 tons. The shift occurred even in the Middle Kingdom (+10 tons), which for the past two years showed passivity. The protectionism policy pursued by Donald Trump forces affected countries to move away from the US dollar, and gold is a good alternative. At the same time, the weakening of the USD index and the growth of the Chinese yuan and the Indian rupee can increase the demand for physical assets in Asian countries, the largest precious metal consumers in the world.

Technically, consolidating in the $ 1275-1300 per ounce area near the target by 200% using the AB = CD pattern looks logical. The Bulls reached the target and made a halt. A breakthrough of the psychologically important level of $ 1,300 will most likely lead to the continuation of the northern gold trek.

Gold, the daily chart