18.03.202015:23 Forex Analysis & Reviews: Gold breaks the trend

Many investors do not understand how, against the backdrop of the defeat of US stock indices, the fall in US Treasury bond yields, the growing probability of a recession in the United States, the Fed's reduction of the federal funds rate from 1.75% to 0.25% and the resuscitation of QE for $700 billion, gold can mark the worst week since 1983 and decline by 13% from the levels of 7-year highs that took place in early March. Panic in the financial markets almost always inflates the demand for safe-haven assets, which for centuries have been accepted to include precious metals. Has it lost its status?

History often not only repeats itself but also rhymes. Similarly, during the global financial crisis in 2008, gold fell into the abyss along with the US stock market but managed to stop in time and within a few months rose by 45%. The S&P 500, on the contrary, continued to dive down and only found the bottom in March 2009. The reasons for the XAU/USD debacles are very similar: just as in those days, now investors are dumping precious metals to get cash and send it to avoid margin calls in the securities market. Some see the current fall in stock indices as a great opportunity to buy something that is cheap and thus form a long-term long position on the stock.

If you add to this an excessively high, close to record highs, size of speculative long positions for gold in the futures market, which at any hint of danger is ready to sharply reduce, then the collapse of XAU/USD ceases to look illogical.

The Fed added fuel to the fire of gold sales. An aggressive reduction in the federal funds rate at an extraordinary meeting did not save the S&P 500 from falling, and the news of large-scale swap operations with the world's leading central banks seriously scared investors. If Jerome Powell and his colleagues are afraid of a crisis in the global finance market, we need to urgently return to the US dollar! While Japan, the eurozone, and other developed countries have received American currency in the framework of agreements on mutual exchange of payment flows, developing countries have not. Their monetary units are falling into the abyss, and the demand for dollars is growing by leaps and bounds. As a result, the "bulls" for XAU/USD continue to feel extremely uncomfortable.

Dynamics of gold and the USD index

The sharp rise in the USD index is caused, among other things, by rumors about the White House's intention to save the US economy with a large-scale fiscal stimulus of $ 1-1. 2 trillion, while the first tranche of $250 billion in the form of money for Americans to pay for their expenses should arrive in the near future. Donald Trump and his team, seeing the futility of the Fed's attempts to put out the fire in the stock market, decided to take on the role of firefighters. Will it work?

Technically, thanks to the implementation of the "Three Indians" pattern, the precious metal confidently went down. The trend lines were broken not only at the surge stage, but also at the initial stage of the "surge and reversal with acceleration" model. If in the next few days "bulls" fail to return quotes above $1550 per ounce, the risks of continuing the peak in the direction of $1430-$1435 and $1360 will increase.

Gold, the daily chart