Rising US stock indices and treasury bond yields forced gold to retreat. Investors are beginning to doubt that the coronavirus will cause the global economy as much pain as Bloomberg experts predict, expecting China's GDP to slow to 4.5% in the first quarter. At the same time, strong statistics on business activity in the manufacturing sector from ISM and on new industrial orders allowed the S&P 500 to recover and strengthen the position of the US dollar.
After falling more than 7% in trading on the first day after the holidays, the Chinese stock market stabilized, which calmed the nerves of investors on other exchange platforms. They expect additional monetary stimulus from the People's Bank of China and are gradually buying up cheaper assets. However, the increase in risk appetite before the coronavirus reaches its peak looks like a kind of false start, and the release of US employment data for January may change everything. According to preliminary data, the Department of Labor will review non-farm payrolls for the year in a downward direction, which could be a serious shock for fans of the S&P 500 and the US dollar.
Meanwhile, stocks of gold-focused specialized exchange-traded funds have overwritten the historical maximum reached in 2012. They rose to 2573.9 tons amid concerns about a slowing global economy, a loss of faith in other safe-haven assets, including the Japanese yen and Swiss franc, and a growing global debt market with negative yields of up to $13 trillion.
Dynamics of gold and ETF stocks
Central banks are also interested in the precious metal. Beginning in 2009, according to the World Gold Council, they had acquired 5109 tons, which is equivalent to $200 billion. The total reserves of regulators are only 10% lower than the historic maximum of 38491 tons in 1966. In 2019, central banks purchased 650 tons. This is the second-best result in the last half-century. In January, the Central banks of Russia and Kazakhstan bought another 9.7 tons and 3.5 tons.
Thus, if in the short term, XAU/USD quotes can move both north and south under the influence of coronavirus, labor market statistics, and other drivers, then the long-term investment horizon is likely to continue the upward trend. This will be facilitated by mountains of bonds with negative yields. For rates to go up, monetary policy needs to be normalized by the world's leading central banks. It looks unlikely in the context of slowing global GDP and regularly emerging international risks. Moreover, another inversion of the yield curve hints at the proximity of a recession in the US and requires the Fed to resume the cycle of preventive monetary policy easing.
Technically, a breakthrough of support at $1543 and $1536 per ounce will activate the 1-2-3 pattern and allow the gold bears to count on the development of a correction in the direction of $1500 and $1480. On the contrary, updating the February maximum will increase the risks of implementing the target by 200% on the AB=CD pattern. It corresponds to the mark of $1665.
Gold, the daily chart