Gold scares dollar recession

Gold continues to trade in the range of $1270-1310 per ounce, sensitively reacting to the behavior of the dollar, US Treasury bonds, and US stock indices. Despite the fall in rates on 10-year bonds to its lowest level since September 2017, the US currency shows signs of strengthening. It is again perceived by investors as a safe-haven asset, which in the conditions of maintaining trade tensions between Washington and Beijing, deprives the precious metal of an important trump card.

During his visit to Japan, Donald Trump said that the States are not ready to deal with China, Beijing is attacking the WTO, arguing that the US is manipulating its national security in order to introduce illegal tariffs, and the Chinese press talks about weapons of retaliation. They can be 17 rare earth metals, which are used in the production of a wide range of goods, including military equipment. Their main supplier to the American market is China, and the rise in prices will hit the consumer's pocket. Obviously, a trade war is a serious and lasting one. The question is who will take better advantage of it: gold, which traditionally grows during the escalation of various conflicts, or the US dollar, which in 2018 intercepted the status of the main asset-shelter not only from the precious metal but also from the yen and the franc.

American macroeconomic indicators can give a hint. If last year the economy expanded under the influence of a large-scale fiscal stimulus, this year may be deflated due to weak external demand. The fall in the yield curve of the US in the red zone is increasing the risks of a recession. And this is not the only negative signal. The differential price of gold and silver reached its highest level since 1991 when the States were in a recession. In contrast to XAU/USD, the XAG/USD bulls are experiencing problems due to the slowdown in the global industry under the influence of trade wars.

Dynamics of gold and silver


Investors will closely monitor the statistics on US GDP and Chinese business activity. According to Bloomberg experts, the US economy expanded not by 3.2%, but by 3%. In April-June, it may be even worse: the leading indicator from the Atlanta Federal Reserve Bank signals a modest growth in the gross domestic product by 1.3%. The peak of purchasing managers' indices in China may strengthen anti-risk sentiment and contribute to the correction of the S&P 500, which should be considered as a "bullish" factor for XAU/USD.

Unlike the futures market for gold, the physical asset indicates the untapped potential of falling prices. Swiss net exports in April rose to 142 tons, 80% of the total supply went to Asia. India imported 58.6 tons from this European country, which is the highest figure in two years. As a rule, when gold flows from West to East, the market is dominated by "bears".

Technically, consolidation in the range of $1270-1310 per ounce becomes more pronounced. The breakthrough of the lower limit activates the pattern AB=CD with a target of 161.8%. On the contrary, a successful assault on the resistance at $1288 and $1304 will return the bulls hope for the implementation of the "Wolfe Wave" model.

The material has been provided by InstaForex Company -