11.10.201800:49 Forex Analysis & Reviews: Gold walks on the edge of the abyss

Gold managed to stay within the medium-term trading range of $1184-1214 per ounce thanks to the statements of Donald Trump, who slowed down the buyers of the US dollar. The president for the second time in the last few weeks expressed dissatisfaction with the Federal Reserve's policy, which is able to slow down economic growth. If the central bank is confident that inflation will not go far from the target of 2%, why raise rates? Verbal interventions of the host of the White House temporarily stopped the "bulls" on the USD index, and it was the strengthening of the US currency that caused the main headache for the precious metal in April-October.

Gold is already tired of jostling in a narrow trading range. The risks of a breakout of its lower border look more preferable than the probability of a hike of the XAU/USD to the north. The US economy, under the influence of fiscal stimulus, is bursting with health, the unemployment rate has reached its lowest level in almost half a century, and the yield of 10-year Treasury bonds is not tired of rewriting 7-year highs. The precious metal is unable to compete with profitable securities, so the rally of real rates of the US debt market, as a rule, leads to a decrease in its value.

An improvement in the physical asset market as well as a favorable geopolitical background play on the side of the "bulls" of the XAU/USD. Not only has the IMF lowered its global GDP growth forecast for the first time since 2016, it has also warned of a possible crisis in developing countries. Trade wars are slowing China's economy, and rising oil prices are increasing the risks of accelerating inflation around the world. Gold is traditionally perceived as a tool to protect against accelerating consumer price growth. Indian net imports in September amounted to 93.8 tons, which is almost twice more than last year. In August, the supply of precious metals to the Asian country reached 90 tons.At the same time, the increase in the cost of borrowing in the United States raises the likelihood of a corrective movement in the stock indices and contributes to the growth of the fear index VIX. These factors are considered to be bullish for XAU/USD.

The dynamics of the VIX volatility

Frankly, the position of the bears in the analyzed asset seem preferable. The experience of the past months has shown that investors perceive the US dollar as a safe haven asset, so the escalation of trade tensions between the United States and China and the aggravation of the political situation in Italy so far lead to the strengthening of the USD index, and not vice versa. It is difficult for gold to resist the US currency, which makes it more expensive for imports to the largest consumer countries of the physical metal to rise in price.

Donald Trump's comments previously had a limited impact on the market, and the temporary weakness of the US dollar after the president's statements was replaced by a rapid recovery of its positions. In this regard, the risks of gold's breakout of the lower border of the medium-term trading range look quite high.

Technically, a successful storm of support at $1184 per ounce will create prerequisites for activating the AB=CD pattern with targets at 161.8%. It corresponds to the $1125 mark.

Gold, daily chart