Bitcoin takes customers away from gold

In November, gold reported that it stayed in the narrowest trading range ($1,265-1300 per ounce) from 2005. In early December, it likely tested its lower bound against the background of the promotion of the bill on tax reform through the US Congress. For a long time, precious metals were supported by uncertainty surrounding this process and the potential risks of a sharp collapse of stock indices in the event that Republicans are unable to implement the promises of the U.S. president. While everything is going smoothly, and despite serious disagreements in the proposals of the Senate and the House of Representatives, hopes that the document will be signed by the owner of the White House during the holidays is growing by leaps and bounds.

The formation of the $35 range in the precious metals band is largely due to the pressure of two opposing groups of factors. On the one hand, the Fed's willingness to hike rates in the event of fiscal reform in the US leads to an increase in the yield of treasury bonds and the strengthening of the dollar, which gold is unable to compete with. On the other hand, in the context of uncertainty surrounding the overhaul of the tax system, the ceiling of the national debt, the relationship of the United States with North Korea, China and other countries that are ready to receive a mark of the currency manipulator from Washington, investors would naturally diversify their portfolios in favor of reliable assets.

Dynamics of gold and yield of US bonds

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Source: Bloomberg.

Quotes of the XAU/USD could grow more if fans of the physical asset did not switch to bitcoin and other cryptocurrencies in 2017. As a result, the sale of coins by the American court fell to its lowest level since 2007.

There is no consensus on medium and long-term prospects for gold from banks and investment companies. TD Securities believes that its average price in 2018 will be $1,313 per ounce, which is approximately 4% higher than the same indicator of the current year. Yes, the Fed will continue to hike the rate on federal funds, but this will unlikely strengthen the dollar, as other central banks will begin to normalize monetary policy. The tax reform will help accelerate inflation and reduce the real yield of US Treasury bonds, which is also a bullish factor for XAU/USD. Similar positions are held by HSBC Securities and CPM Group, expecting to see average prices at $1310 and $1322.

Current and average gold prices

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Source: Bloomberg.

On the contrary, Citigroup and ABN Amro forecast $1,270 and $1,250 per ounce in 2018 due to improved health conditions of the US and the global economy, more aggressive actions by the Fed than the market is currently waiting for, and sluggish demand for jewelry in Asia.

Therefore, both "bulls" and "bears" have quite serious arguments. On which of them will ultimately decide to use gold, and will determine its dynamics next year.

Technically, the output of futures quotes outside the consolidation range of $1262-1302 and the breakthrough of diagonal support in the form of the lower border of the upward trading channel increases the risks of implementing the target by 78.6% on the Gartley pattern.

Gold, daily chart

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The material has been provided by InstaForex Company - www.instaforex.com