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Gold wages war on two fronts

The correction of world stock indices allowed gold bulls to take a breather. In April, the precious metal went into deaf defense against the background of new S&P 500 records and the rise of the USD index to the area of 23-month highs. Stocks of the largest specialized stock exchange SPDR Gold Shares fell to 747.9 tons, the lowest mark since October, and in general, the ETF index returned to the marks from which it began the year. The growth of global risk appetite and a strong dollar is a disastrous combination for gold. However, its fans do not intend to sprinkle ashes on the precious metal's head just yet.

On the side of the bulls, XAU/USD is played by low real rates of the global debt market and high demand for physical assets from central banks and Asia. Thus, in March, Russia added 600 thousand ounces to its reserves, Turkey - 546 thousand, China - 360 thousand, Kazakhstan - 161 thousand. Regulators diversify assets, getting rid of US dollars due to Donald Trump's policy of protectionism and the threat of new sanctions . At the same time, exports of precious metals from Switzerland to China in March exceeded 1 million ounces, which is the highest value since November. In my opinion, there is no reason to flatter yourself about the latest statistics: the experience of 2013 suggests that when gold flows from West to East (from ETF to Asia), the bears dominate the derivatives market.

If the release of US GDP data for the first quarter proves that the US economy is still strong, the S&P 500 and other stock indices have good chances to continue the rally. Strong dollar positions depend on the weakness of other currencies. The disappointing statistics on Australian inflation and the German business climate pulled down the aussie and the euro, while the sharp decline in the Bank of Canada's GDP forecast of the Maple Leaf country for 2019 hit the bulls positions hard. The USD index rushed to 23-month highs, and as long as investors do not see an improvement in the health status of the leading economies of the world, we cannot talk about its serious correction. In this regard, XAU/USD quotes in the short term risk a return of the downward trend.

Gold and Dow Jones Dynamics


In the mid-term investment horizon, the situation may seriously change. If the eurozone and China do not justify the hopes placed on them, the US dollar will continue to strengthen due to the high demand for safe-haven currencies in the face of worsening global risk appetite, but the likelihood of a correction of the S&P 500 will increase. On the contrary, good news from Asia and the eurozone will lead to a rollback of the USD index, but the US stock market is likely to retain its momentum. Both scenarios are fraught with consolidation of the precious metal. It is possible that at the turn of April and May, it will grope the boundaries of the future trading range.

Technically, after reaching a target of 161.8% for the AB=CD subsidiary pattern, a slight increase in gold quotes appears logical. "Bulls" are trying to cling to the level of $1275 per ounce (38.2% of the long-term uptrend). If it works out - there will be a chance to return the precious metal in the range of $1282-1310, if it does not - the initiative will return to the "bears".

The material has been provided by InstaForex Company -