FX.co ★ Gold attracts speculators

After a rapid 11% gain from March bottom levels, gold has stabilized in anticipation of the April FOMC meeting minutes. The Fed's intention to adhere to the current parameters of ultra-soft monetary policy for a long period of time, despite accelerating inflation to 4.2%, creates a tailwind for the bulls on XAU/USD. Officials will certainly continue to use "dovish" rhetoric, but before the publication of an important document, fans of the precious metal prefer not to climb the hell forward.

By the end of the week, by May 11, hedge funds increased net longs in gold by as much as 12%, which is the highest figure since June. Stocks of precious metal ETFs have continued to grow for seven straight trading sessions, with fans of ETF products poised to turn into net buyers since the beginning of the year. According to TD Securities, after months of capital outflows, a return of speculative interest could trigger a breakout in gold.

The collapse of bitcoin after Elon Musk's statement on terminating bitcoin payments for Tesla cars, and a number of restrictions introduced in China and other countries played a significant role in the rise of XAU/USD to 4-month highs. These assets were previously considered as an alternative to precious metals in the field of hedging inflation risks, but hardly anyone will seriously deal with this, looking at how the cryptocurrency reacts to the words of the eccentric billionaire. The bitcoin to gold ratio fell from 36 in April (a record high) to 23 ounces, the lowest since early February.

Bitcoin to gold ratio dynamics

In my opinion, as long as the Fed adheres to the mantra of its readiness to turn a blind eye to overheating of the economy, and consumer prices grow by leaps and bounds, the XAU/USD bulls will continue to feel like a fish in water. In this situation, the real yield of US Treasury bonds falls, which is a guiding star for the precious metal.

According to a survey of large investors by BofA Merrill Lynch, inflation appears to be the main risk for the financial markets. Subsequent places were taken by debt market hysteria, asset bubbles, and COVID-19. Indeed, Forex is now racking its brains over two questions: is the Fed right about the temporary nature of the inflation acceleration process, and will it tighten monetary policy sooner than financial markets expect? Uncertainty creates problems for buyers of securities and increases the demand for a safe-haven asset like gold.

Technically, the implementation of the "Wolfe Wave" pattern continues on the daily chart of the precious metal. Its target reference in the form of a projection drawn from point 5 to line 1-4 suggests that the growth potential of the analyzed asset is still very large. It seems that gold is capable of returning above $2,000 per ounce, so I recommend holding the previously formed longs from the level of $1,800 and periodically increasing on pullbacks.

Gold, daily chart