empty
01.02.2018 04:58 AM
Gold loses roots

Investors remembered the previous year with enthusiasm, when working with gold, a simple strategy was relevant: as the FOMC meeting was approaching, at which the federal funds rate was to be raised, it made sense to sell the XAU/USD. On the topic of monetary tightening, the precious metal, on the contrary, was redeemed on the background of the realization of the principle "sell on the rumor, buy on facts". Most likely, nostalgia for the good old days forced speculators to hold their horses on the eve of the Fed's January meeting.

Despite the fact that the futures market implies only a 5% chance of a tightening in monetary policy, previous speeches by FOMC members were "hawkish". In conditions of a strong labor market, the devaluation of the dollar, the rapid rally of Brent and WTI, and the growing yield on Treasury bonds, an indicator of inflationary expectations - even those who are "dovish" began to show less concern about sluggish inflation. PCE can easily accelerate, and in order to contain it, the Fed will have to raise rates, at least three times this year. The CME derivatives implied a 62% chance that this will happen.

If this happened in 2017 and was accompanied by the same rapid rise in the real yield of US Treasury bonds, then the quotes of XAU/USD would fall to $1200 per ounce. To the surprise of investors, gold, on the contrary, notches almost five-month highs, is ready to enter the operational space and reach the mark of $1400. According to the World Gold Council, the precious metal will be able to reconnect with the rates of the US debt market, but for this it will need to move to a new level of prices.

Dynamics of gold and real yield of US bonds

This image is no longer relevant

Source: Financial Times.

What's the matter? Why do previous correlations not work? Perhaps, the cryptocurrencies are to blame, whose large-scale selling in January forced fans to look for other safe havens? In my opinion, the weak US dollar was the main driver of the impressive precious metal rally in 2018. In order to see this, it's enough to look at the value of gold in euros. Since July 2017, it has not changed at all.

Dynamics of gold, denominated in euros

This image is no longer relevant

Source: Bloomberg.

Is the "Greenback" so weak? The average level of growth of quarterly GDP was slightly less than 3% in April-December, its potential acceleration under the influence of the fiscal stimulus, the reduction of political risks, the monetary tightening of the Fed and attractive rates on US government debt says the opposite. The problem is probably not in the United States, but in other countries and regions where the central banks-competitors of the Federal Reserve gave rise to talk about normalization. If it does not, then gold will begin to lose ground against the backdrop of the dollar gradually returning to the game.

Technically, in order to continue the rally in the direction of $1390 per ounce, it is necessary to update the January peak. The nearest support is located near the $1335 mark.

Gold, daily chart

This image is no longer relevant

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

USD/JPY. Analysis, Forecast, and Current Market Situation

Intraday demand for the Japanese yen remains steady, accompanied by broad-based U.S. dollar weakness, contributing to the decline in the USD/JPY pair. Rising expectations that the Bank of Japan

Irina Yanina 12:55 2025-06-26 UTC+2

XAU/USD. Analysis and Forecast

Gold prices are showing moderate gains for the second consecutive day, though they remain below the 3,350-dollar level. Intraday demand for the Japanese yen persists alongside broad U.S. dollar weakness

Irina Yanina 12:34 2025-06-26 UTC+2

USD/CHF. Analysis and Forecast

The USD/CHF pair has remained under pressure for the fourth consecutive day, falling back to levels last seen in 2011. Bearish sentiment toward the U.S. dollar persists amid concerns over

Irina Yanina 12:04 2025-06-26 UTC+2

Trump Again Criticizes the Fed for Being Too Slow

On Wednesday, the U.S. dollar sharply declined against major currencies after President Donald Trump stated that he has three or four candidates in mind to replace Federal Reserve Chair Jerome

Jakub Novak 10:59 2025-06-26 UTC+2

Investors Recall the Chronic Weakness of the Dollar (Further Decline in #USDX and USD/JPY Possible)

The markets continue to be dominated by the theme of Iran-Israel negotiations, previously initiated by the United States. Whether actual agreements are reached or not will have a noticeable impact

Pati Gani 09:19 2025-06-26 UTC+2

The Market Has Found a Cure for All Troubles

It seems that the heavens are aligned with Donald Trump's desires. The U.S. President's successes in the Middle East have led to a new perspective on the policies pursued

Marek Petkovich 09:04 2025-06-26 UTC+2

What to Pay Attention to on June 26? A Breakdown of Fundamental Events for Beginners

Very few macroeconomic reports are scheduled for Thursday, and the market this week has shown a clear intention to continue the upward trend that has lasted for five months. Yesterday

Paolo Greco 07:16 2025-06-26 UTC+2

GBP/USD Overview – June 26: July 9 Is Approaching

The GBP/USD currency pair remained stagnant for most of Wednesday. Let's recall an old technical signal: if the price updates a significant extreme and immediately pulls back, there

Paolo Greco 03:39 2025-06-26 UTC+2

EUR/USD Overview – June 26: Jerome Powell Said Nothing New

The EUR/USD currency pair remained completely calm throughout Wednesday. Let's recall that this week began with a storm, provoked—of course—by Donald Trump, who first announced a ceasefire between Iran

Paolo Greco 03:39 2025-06-26 UTC+2

The Euro Regains the Initiative

The euro is attempting to resume its upward movement, although not many economic reasons support this scenario. Inflation in May rose in line with the ECB's expectations, which only strengthened

Kuvat Raharjo 00:43 2025-06-26 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.