Forex Analysis & Reviews: 11.04.2019 - Gold: modesty is the sister...

11.04.2019 03:02 PM

Gold: modesty is the sister of talent

Gold managed to capitalize on US intentions to impose $ 11.2 billion in import duties against the European Union for illegal subsidies for Airbus, as well as from the results of the ECB meeting and the contents of the March FOMC minutes protocol. Fears of the European Central Bank about the further slowing of the eurozone economy and the Fed's readiness to keep the federal funds rate at 2.5%, at least until the end of 2019, contributed to a fall in bond yields in the Old and New World. In the face of declining borrowing costs, the precious metal usually feels very confident due to the increase in its share in investment portfolios.

Gold that lacks bullish forecasts is still modest. Societe Generale believes that as the probability of a recession in the US economy grows in 2020. The demand for precious metals will increase and predicts that its average price in the first quarter of next year will be $1,400 per ounce. But for the whole of 2020, it is around the same figure, says TD Securities. As the main "bullish" drivers for the XAU/USD pair, the company cites growing demand from China for a physical asset and the gradual elimination of long positions in the US dollar. In March, the Celestial Empire acquired the next 11.2 tons of gold and increases reserves to 1,885 tons. Over the past 4 months, these increased by 42 tons. In 2018, the central banks led by Russia and Kazakhstan actively bought precious metals and the fact that they were joined by China in 2019.

The slowdown in the US economy and the Fed's intention to keep the federal funds rate, at 2.5% at least until the end of 2019, is forcing large banks to change their forecasts for US Treasury yields. Thus, HSBC lowered its estimate for 10-year securities from 2.5% to 2.1% at the end of the year. The lower the yield falls then the greater the chances of gold to continue the rally. In this regard, the fall in German debt rates after the ECB meeting, as well as the release of US inflation data for March and the publication of the FOMC meeting minutes played into the hands of the XAU/USD bulls.

Dynamics of gold and yield of US Treasury bonds

In my opinion, gold could rise higher if it was not for the strong position of the US dollar but more precisely, if not for the weakness of the euro. The share of the single European currency in the structure of the USD index is 57%, hence, the sluggish dynamics of the eurozone economy has a positive effect on the US currency and restrains the offensive outburst of precious metal fans. If the situation in China and in the eurozone begins to improve, buyers of EUR/USD and XAU/USD pairs will extract dividends. For this, it is necessary that the situation with Brexit be clarified and Donald Trump did not start another trade war but this time with the EU.

Technically, a breakthrough of resistance levels at $1313 and $1322 per ounce with a simultaneous release of gold futures quotes beyond the descending short-term trading channel will increase the risk of activating the harmonious trading "Crab" pattern. Its target for 161.8% corresponds to $1389.

Gold daily chart