Panic is the perfect environment for safe-haven assets. Gold has grown by 20% over the past six months due to the market’s regular turmoil. Concerns about a banking crisis and recession in the United States have pushed XAUUSD quotes up, even though a correction seemed inevitable. To survive in the market, it is necessary to learn how to separate the wheat from the chaff and not to take wishful thinking for reality.
The departure from the front pages of the banking crisis and a number of “hawkish” speeches from Fed officials talking about the need to continue the monetary tightening cycle, at least in May, allowed CME derivatives to increase the chances of the federal funds rate hike by 25 bps, to 5.25% at the next FOMC meeting to 91%. Interest rate swaps even show a probability of an increase not only in May but also in June. Monetary policy sensitive gold was forced to retreat.
However, the external background remains favorable for precious metals. According to most professional investors surveyed in the MLIV Pulse, the U.S. dollar will continue to weaken due to the Fed’s dovish turn, dedollarization, the strengthening of the yen and yuan, and a recession in the U.S. economy. According to two-thirds of central bank respondents in an HSBC survey, their peers will continue to increase gold purchases in 2023. The two main risks for regulators are inflation and geopolitics, both of which create a tailwind for XAUUSD.
Dynamics of gold purchases by central banks
The factor of increased activity of central banks cannot be underestimated. From the perspective of models based on real bond yields, gold appears overbought. Only the activity of regulators can explain its strength. There is a market opinion that any drop in quotes below $1950 per ounce will be immediately bought, so the correction potential for XAUUSD looks limited.
In my opinion, in the medium and long term, it is necessary to remain in the camp of gold bulls. Anything can happen in the short term. Strong statistics on durable goods orders, GDP, and inflation in the United States can revive interest in the dollar, raise Treasury bond yields, and increase the chances of a 25 bps federal funds rate hike in May. In such a scenario, gold will face serious difficulties, which are most likely temporary.
Ultimately, central bank purchases have not been canceled, and the most aggressive monetary tightening by the Federal Reserve will certainly cool the U.S. economy. If it freezes altogether, precious metals will once again become the darling of the public. We’ll wait and see, but for now, we must be prepared for increased market turbulence amid the release of important macro statistics from the United States.
Technically, a Splash and Shelf pattern has formed on the daily gold chart. The inability of the bulls to keep quotes above the fair value of $2003 per ounce and a fall below the lower limit of the shelf of $1975–$2011 are reasons for short–term sales.
The material has been provided by InstaForex Company – www.instaforex.com
Panic is the perfect environment for safe-haven assets. Gold has grown by 20% over the past six months due to the market’s regular turmoil. Concerns about a banking crisis and recession in the United States have pushed XAUUSD quotes up, even though a correction seemed inevitable. To survive in the market, it is necessary to learn how to separate the wheat from the chaff and not to take wishful thinking for reality.
The departure from the front pages of the banking crisis and a number of “hawkish” speeches from Fed officials talking about the need to continue the monetary tightening cycle, at least in May, allowed CME derivatives to increase the chances of the federal funds rate hike by 25 bps, to 5.25% at the next FOMC meeting to 91%. Interest rate swaps even show a probability of an increase not only in May but also in June. Monetary policy sensitive gold was forced to retreat.
However, the external background remains favorable for precious metals. According to most professional investors surveyed in the MLIV Pulse, the U.S. dollar will continue to weaken due to the Fed’s dovish turn, dedollarization, the strengthening of the yen and yuan, and a recession in the U.S. economy. According to two-thirds of central bank respondents in an HSBC survey, their peers will continue to increase gold purchases in 2023. The two main risks for regulators are inflation and geopolitics, both of which create a tailwind for XAUUSD.
Dynamics of gold purchases by central banks
The factor of increased activity of central banks cannot be underestimated. From the perspective of models based on real bond yields, gold appears overbought. Only the activity of regulators can explain its strength. There is a market opinion that any drop in quotes below $1950 per ounce will be immediately bought, so the correction potential for XAUUSD looks limited.
In my opinion, in the medium and long term, it is necessary to remain in the camp of gold bulls. Anything can happen in the short term. Strong statistics on durable goods orders, GDP, and inflation in the United States can revive interest in the dollar, raise Treasury bond yields, and increase the chances of a 25 bps federal funds rate hike in May. In such a scenario, gold will face serious difficulties, which are most likely temporary.
Ultimately, central bank purchases have not been canceled, and the most aggressive monetary tightening by the Federal Reserve will certainly cool the U.S. economy. If it freezes altogether, precious metals will once again become the darling of the public. We’ll wait and see, but for now, we must be prepared for increased market turbulence amid the release of important macro statistics from the United States.
Technically, a Splash and Shelf pattern has formed on the daily gold chart. The inability of the bulls to keep quotes above the fair value of $2003 per ounce and a fall below the lower limit of the shelf of $1975–$2011 are reasons for short–term sales.
The material has been provided by InstaForex Company – www.instaforex.com
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