FX.co ★ Gold's best days are in the past

The resumption of growth in US Treasury yields has cut off oxygen not only for technology stocks but also for gold. Stock indexes and precious metals seem to have the same buyers, so Joe Biden's plan to raise capital gains taxes on wealthy Americans, which would potentially slow the economy, would not necessarily lead to a rise in XAU/USD. The pullback of the S&P 500 is also fraught with a drop in gold prices. However, at the moment, the focus of investors' attention is on the Fed meeting and the release of US GDP data for the first quarter.

The improvement in US statistics, further confirmed by the rise in consumer confidence to a 14-month high, allows Jerome Powell to speak about the prospects for the US economy with more enthusiasm than it was at previous FOMC meetings. Nevertheless, the Fed chairman should not go too far, because the excessive joy in his eyes will be perceived by the markets as a hidden signal about the beginning of the curtailment of QE, which will provoke a sell-off of the S&P 500, a rise in bond yields and a strengthening of the US dollar. This is hardly part of the Fed's plans.

There are rumors in the market that his peaceful rhetoric is already taken into account in the quotes of debt obligations, so the slightest "hawkish" notes in Jerome Powell's speech will contribute to their further sales. If the market's sensitivity to dovish rhetoric is declining, why shouldn't bond yields rise? This is bad news for gold.

Dynamics of gold and US Treasury bond yields

In March, the rally in debt rates actively supported the US dollar, so its stabilization on the eve of the announcement of the results of the April FOMC meeting should not come as a surprise. The return of investor interest in buying the USD index is also bad news for the precious metal. There is growing confidence in the market that in the coming years, it will no longer be able to rewrite the historical maximum reached in 2020, although Goldman Sachs continues to believe in the growth of futures quotes above $2,000 per ounce. According to the bank, bitcoin took away the function of gold as a hedge against inflationary risks too soon.

Dynamics of gold and bitcoin

Let me agree with the majority of the market that the best days of gold are in the past year. As the experience of the previous recession shows, the start of the Fed's monetary policy normalization leads to the formation of a "bearish" trend in precious metals. Its fans can only hope that the Fed will stick to the idea of maintaining the current parameters of ultra-soft monetary policy for a very long time. Until 2023. If Jerome Powell and his colleagues start discussing the QE rollback in April, the XAU/USD bulls will have a hard time.

Technically, only the growth of gold above $1,800 per ounce will allow us to talk about the fulfillment of targets on the "Wolfe Wave" pattern and will become the basis for opening long positions. On the contrary, the fall in prices below the support at $1,750 will increase the risks of the continuation of the downward campaign towards $1,715 and $1,675 per ounce. In this situation, the precious metal will need to be sold.

Gold, Daily chart