FX.co ★ Gold will play on the weaknesses of the Fed

Stock indices and yields on US Treasury bonds are going down, and the dollar is falling. What could be better for gold? Precious metal benefits from a favorable external background and confidently moves up. Futures quotes returned to the five-month highs area and in the case of the "pigeon" rhetoric, the FOMC is ready to continue the rally. Unlike the previous meetings of the FOMC, at which rates were raised, gold is not afraid of the December tightening of monetary policy. Why? It may be the last in this cycle.

Jerome Powell's recent speech on the proximity of current levels of the federal funds rate to the neutral value of the indicator was the first news of a change in the Fed's worldview. The September FOMC predictions suggested three acts of monetary restriction in 2019, as well as the October speech of its chairman. In December, the situation changed. The yield curve is ready to invert, which with a time lag of 9-24 months in the past led to a recession. The real estate market is standing, inflation is slowing down, the state of the manufacturing industry is poor. The weakness of the world economy completes the problems. The dynamics of Chinese retail sales, European business activity, and Japanese foreign trade indicate a decrease in GDP growth in the largest countries.

If the Fed continues to normalize at the same pace, it will strengthen the dollar, which will adversely affect US exports, inflation, and corporate profits. Let US Treasury Secretary Steven Mnuchin say that a strong currency indicates high confidence in the American economy; less than a year ago in Davos, Switzerland, he argued about the beneficial effects of devaluation on foreign trade. The White House took to the practice of practicing verbal interventions. Donald Trump calls on the Fed not to raise rates and stop reducing the balance, and his trade advisor Peter Navarro calls the Central Bank crazy. The ongoing stream of criticism undermines the position of the dollar "bulls" and contributes to the growth of gold.

Dynamics of gold and US dollarHowever, Citigroup does not believe that the USD index will definitely collapse after the December FOMC meeting. A lot of negatives have already been taken into account, and even if the Central Bank lowers its estimates for the growth in the federal funds rate in 2019, this will not lead to a new wave of US dollar sales. The derivatives market does not believe in one act of monetary restriction next year (the probability of such an outcome is 40%, for the week it fell by 17 percentage points). In my opinion, a change in the worldview of the Fed is the key to the change in the current trends in 2018. Another thing is that this requires a positive from the eurozone, Britain and other major economies. This circumstance allows me to assert that the XAU / USD path will be thorny.

Technically, in the case of updating the December highs in gold, the risks of continuing the rally in the direction of the target by 200% according to the AB = CD pattern will increase. It corresponds to the mark of $ 1290 per ounce.

Gold, the daily chart