Gold received a stimulant from the Middle East

When in April 2013 gold dipped 13.5% during two trading days, investors started talking about the bear market. The hysterical cone and associated expectations about the strengthening of the US dollar made a whipping boy out of the precious metal. In January 2018, the XAU/USD pair marked an 11-day rally against the backdrop of a weakening US currency. At the beginning of 2020, it has been growing for 10 days and for the first time in almost seven years has exceeded $1,600 an ounce. This time the USD index has nothing to do with it.

After the assassination of the Iranian military leader and Tehran's threats of US revenge, many considered the conflict in the Middle East settled. China during the course of the trade war repeatedly promised to annoy the United States, but did not take a dangerous step. Iran turned out to be bolder than China. Having inflicted airstrikes on US military bases in Iraq, it actually untied the hands of Donald Trump. Prior to this, the US president claimed retaliation in the event of Tehran's attacks and claimed that he did not need Congress's consent to start a war. Judging by the dynamics of safe haven assets, it is not worth excluding the aggressive invasion of Americans in the Middle East. Indeed, US bond market indicators indicate the possibility of continuing the XAU/USD rally.

Dynamics of gold and the spread of yield on treasuries and bonds protected against inflation


Goldman Sachs notes that the precious metal worked well during both gulf wars and after the September 11 attacks in 2001. Macquarie, on the contrary, recalls that these events, like attacks on industrial facilities in Saudi Arabia in early autumn 2019, only resulted in a temporary surge in gold prices. In the future, the bulls on XAU/USD did not find the strength to update the extremes and continue the rally.

Perhaps in 2020 the situation could have developed in a different scenario, if not for a strong dollar. The conflict in the Middle East is driving up oil prices, which is beneficial for the United States and not the global economy. Americans became a net exporter of black gold, so the Brent and WTI rallies play into their hands. Global GDP, by contrast, will not be able to quickly recover from the effects of the trade war between Washington and Beijing if the cost of raw materials continues to grow by leaps and bounds. As a result, the idea of expanding the divergence in the growth of the global and American economies will be put on the back burner, which will lead to an increase in the USD index and will restrain the offensive impulse of precious metal fans.

However, speculators are not discouraged. By the end of the week, by December 31, they had increased their net longs in gold to the highest level since September. The growth rate is the third consecutive five days.

Technically, after reaching the target by 113% according to the Shark pattern, the risks of correction increased to 23.6%, 38.2% and 50% of the CD wave, followed by the transformation of the model into 5-0. A signal about the development of the retreat may be a breakthrough of support at $1575 per ounce. If, on the contrary, it remains in the hands of the bulls, they will have the opportunity to renew the January high and continue the upward path.

The material has been provided by InstaForex Company -