22.02.201800:59 Forex-elemzések és áttekintések: Gold returns to the previous drivers

After displaying an irrational behavior in early 2018, the dollar and gold gradually return to the previous drivers. If in January and in the first half of February the increase in the yield of US Treasuries led investors to confusion causing the decline in the USD index, then on the eve of the publication of the minutes of the January FOMC meeting, the situation radically changed. The precious metal remembered the old days when speculations of an increase in the rate of federal funds launched a wave of selling, and the facts gave way to large-scale buying.

In my opinion, the weakness of the US currency is due to investors' uncertainty that the US will be able to raise the necessary amount to finance the overhaul of the tax system. The fiscal stimulus will lead to an increase in the budget deficit by $1.5 trillion over 10 years. Another $300 billion over two years will increase costs. Thus, the results of selling, which are scheduled to place papers worth $258 billion during the week of February 23, including 96 billion on three-month and three-month bonds, can give serious food for thought. If foreigners continue to buy American government debt with the same zeal, why didn't the USD index show an upward trend?

Indeed, the strength of the US economy can not be doubted, the chances of overclocking inflation and four interest rate increases in the federal funds rate in 2018 are growing, and the increased attractiveness of government bonds compared to bonds from other countries, usually leads to capital inflow and currency strengthening. Gold is beginning to feel uncomfortable against the backdrop of the dollar rising from the ashes, and the increase in interest in ETF, oriented to shares of gold mining companies, can easily be replaced by their sales.

Capital Flows in ETF Gold Mining Companies

Source: Bloomberg.

On the other hand, the medium-term outlook for the US dollar does not look rosy. It is obvious that the fiscal stimulus in the conditions of the economy at full capacity is an overkill. It accelerates inflation, which in turn causes the Fed to act aggressively and, ultimately, leads to a recession. At the same time, central banks around the world- peers of the Fed - in the conditions of rapid growth of global GDP are gradually moving towards the normalization of monetary policy. And if in 2014-2016 the American dollar easily played out the factor of monetary divergence, then in 2017-2018 it was replaced by convergence, which deprives it of the main trump card.

Of course, to write off failures or, on the contrary, achieve "bulls" for XAU/USD solely on the health of the dollar, at first glance, it is impossible. In past years, the dynamics of gold were influenced by the rates of the US debt market, and politics to geopolitics, and investors' appetite for risk. It is likely, a little later, that the previous drivers will return, but so far all the attention of investors is focused on the USD index.

Technically, the production of precious metals outside the upstream trading channel will increase the risk of continuing correction in the direction of $ 1310-1315 and $ 1,300 per ounce. On the contrary, the release will create the prerequisites for the return of the uptrend.

Gold, daily chart