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It would seem that there should be a hangover after Christmas and New Year, but the precious metal continues to grow as zealously as it did in 2020. At the end of last year, XAU / USD quotes added about 24% due to a weak dollar and low real rates on US Treasury bonds. The latter were pressured by the growing likelihood of a crackdown on inflation. At the beginning of 2021, the external background did not change at all.
The agreement of OPEC + to keep production volumes at the same level within the framework of the collective agreement and the intention of Saudi Arabia to reduce production by 1 million b / d in February-March unilaterally inflated oil futures prices and increased rumors of a rapid increase in inflation. The yield on 10-year TIPS fell to a historically low level, and US inflation expectations for the next 10 years, measured using the break-even rate, jumped to the highest level since 2018. Especially since the ratings signal that two vacant Senate seats will be taken by Democrats. If they manage to take control of both the White House and Congress, Joe Biden will have no problem implementing his idea of increasing fiscal stimulus. This will strengthen the reflationary environment and will contribute not only to the growth of stocks but also gold.
TIPS and gold yield dynamics
Adding fuel to the fire is the Fed's intention to sit on the sidelines until at least 2024. The minutes of the December FOMC meeting, which is scheduled for publication on January 6, will certainly show the Central Bank's intention to maintain the current parameters of ultra-soft monetary policy until the regulator sees steady progress in the area of inflation and employment. The Federal Reserve is ready to tolerate an increase in the index of personal consumption expenditures to 2.5-3%, and this circumstance seriously complicates the status of the US dollar. The worse for the greenback, the better for gold!
Thus, in the short term, the fate of the precious metal depends on the elections in Georgia. The "blue wave" can return its quotes above $2000 per ounce, a Republican victory will also not be a disaster. In this scenario, the chances of fiscal stimulus will decrease, but the risks of higher taxes and increased regulation will fall, which will support stocks. The growth of global risk appetite is a reason for selling the US dollar and for the continuation of the XAU/USD rally.
In the medium term, investors will return to the topic of pandemic and trade wars. Problems with the production, transportation of vaccines, the reluctance of the population to get vaccinated, as well as the continuation of tense relations between the United States and China under Joe Biden can increase the appetite for reliable assets, contribute to the correction of the USD index and the precious metal. Biden understands that the only way to slow down China is to create a ring of allies around it. The problem is that Xi Jinping also understands this.
Technically, a Wolfe Wave pattern was formed on the daily chart of gold with targets at $1990 and $2060 per ounce. The mood remains bullish, so I recommend that if the Democrats win the elections in Georgia, increase the longs formed on the breakouts of the $1890 and $1905 levels for the precious metal.
Gold, daily chart
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