15.11.201800:49 Forex Analysis & Reviews: Gold is betting on inflation

Gold marked the worst weekly dynamics in the last three months after the US dollar withstood the test of the midterm elections in the United States, the Federal Reserve confirmed its intention to continue the cycle of normalizing monetary policy, and producer prices in fact were better than expectations from Bloomberg experts. Acceleration of inflation is an important argument in favor of bringing the federal funds rate to a neutral level, which should be considered as a "bearish" factor for XAU/USD. That is why the futures quotes on the precious metal continue to be in the middle of the consolidation range of $1185-1215 per ounce, despite a number of positive news. Gold is anxiously waiting for the release of data on consumer prices, which is able to inspire fans of the USD index for new feats.

The beginning of negotiations between Beijing and Washington is regarded by investors as a de-escalation of the trade conflict. The breakthrough, according to BofA Merrill Lynch, can lead to selling the US dollar. This currency will lose the status of a safe-haven, which faithfully served it in April-October. The precious metal is supported by the next round of correction of American stock indices and the reluctance of fans of products of specialized exchange-based funds to get rid of them. Despite falling prices, stocks of the largest ETF SPDR Gold Shares rose from 730 tons to 755 tons in the last month. Let me remind you that the pullback of the S&P 500 in October allowed gold to grow in parallel with the US dollar. In November, this does not happen, but the weakness of American inflation will return to the "bulls" on XAU/ USD faith in themselves.

Dynamics of gold and Dow Jones index

Controversial news from the eurozone contributes to the stabilization of the USD index. Irish tabloids argue that the deal between Brussels and London has already been concluded, it remains only to ratify it in Parliament. At the same time, Italy stated that it was not going to rewrite the draft budget submitted earlier by the EU with a 2.4% deficit of GDP. The pound and the euro have recently moved synchronously: investors understand that the disorderly Brexit will put pressure not only on Britain, but also on the eurozone. The presence of positive from the first and negative from the second makes them stay away from the market.

Thus, the short-term prospects for XAU/USD will depend on the release of data on US inflation. Strong statistics will allow the dollar to resume the attack, which is fraught with the continuation of the peak of gold. According to TD Securities, the breakthrough of support at $1190 per ounce will be the catalyst for further large-scale sales. On the contrary, the unimpressive growth in consumer prices will allow the precious metal to recall its trump cards in the form of high demand for ETF, de-escalation of the trade conflict and correction of US stock indices.

Technically, the return of gold futures quotations to the middle of the previous consolidation range of $1185-1215 per ounce indicates the activation of the "Cheating-out" pattern. On the other hand, the retreat from support near the target by 88.6% on "bat" pattern will return the initiative to the "bulls".

Gold, daily chart