17.03.202114:55 Forex Analysis & Reviews: Gold destroys stereotypes

Gold is an asset that never ceases to surprise, especially lately. In early 2021, major banks and investment companies were inclined to believe that a Democratic victory in Georgia, which would allow them to control both the Senate and the House of Representatives, would allow the precious metal to restore an upward trend amid the adoption of fiscal stimulus from Joe Biden and the acceleration of US inflation. But it turned out that the "blue wave" is a bearish factor for XAU/USD. And this is not the only example.

Hopes for a quick passage of the $1.9 trillion stimulus package through Congress boosted the yield on Treasury bonds and strengthened the US dollar, which was a real disaster for the precious metal, which collapsed below $1,700 an ounce. UBS and Goldman Sachs immediately lowered their forecasts for gold, explaining this by growing demand for risky assets amid improved estimates of global economic growth. ABN Amro Bank warned that XAU/USD quotes have reached a peak and will fall.

Over the past three months, the prices of 30-year US Treasuries have plunged 15.6%, depriving their holders of the income they could have received in almost 10 years. The rise in debt yields and the strengthening of the US dollar have led to capital outflows from precious metal-oriented ETFs of 150 tons since the beginning of 2021. Stocks of specialized exchange-traded funds have fallen to their lowest level since June and, it would seem, will continue to do so. But then the time has come to surprise gold.

Dynamics of gold and ETF stocks

Despite the rise in bond rates and the USD index, the precious metal managed to find the ground under its feet and stay above $1,700 per ounce. The largest asset manager BlackRock believes that gold cannot be used as a hedge against inflation risks or higher stock prices, as the correlations of these assets have deteriorated significantly lately. With the help of precious metal, you can only insure yourself against changes in the dollar exchange rate. However, looking at the stability of the XAU/USD quotes against the background of the strengthening of the US dollar, you begin to doubt this.

What's the problem? Why isn't gold falling? I believe that the reasons should be sought in the passive position of the Fed and the Central Bank's attitude to inflation. Jerome Powell and his colleagues at the meeting on March 16 and 17 intend to raise forecasts for GDP and other macroeconomic indicators but maintain estimates of the trajectory of the federal funds rate. They are not going to raise it earlier than 2024 and do not intend to exit QE. According to the Federal Reserve, the surge in inflation will be temporary, but the very fact that the acceleration of consumer prices is likely to take place supports the bulls on XAU/USD.

Technically, the fate of gold is shrouded in fog. A rise in quotes above $1800-1810 per ounce will allow us to talk about the activation of the "Wolfe Waves" pattern and will become the basis for purchases with targets for $2020 and $2060. Nevertheless, until this has happened, the situation on the market is controlled by the bears, so it makes sense to use the rebound from the resistances at $1755 and $1775 to form short positions.

Gold, daily chart