14.12.201702:39 Forex Analysis & Reviews: Gold puts bitcoin in correction

We have expectations for the Fed to raise rates on federal funds and for stock indices to rally. What could be worse for gold? Reliable assets tend to fall into a wave of sales in times of consistently high global appetite for risk and ultra-low volatility. The volatility of futures quotes for precious metals in November touched a record low of 10.17. Although, at the peak of its popularity in 2011, it was at 37. Then, the prices reached $ 1,900 per ounce and the gold standard, the "gold beetles", were convinced that they can rise to $ 5000 and up to $ 10,000.

However, they always had arguments. This is in contrast to the fans of the cryptocurrency which are driven by fear to miss something that they can not even understand. Passing all bounds, the demand for bitcoin reduces the number of "gold beetles". Sales of gold coins by the American court are falling to the lowest levels in the last ten years. Even Commerzbank notes reported that since September, capital flows in the ETF have almost stopped. Since the beginning of the year, the net inflow is 230 tons but almost the entire figure was formed in the first half of the year. At the end of 2016, the indicator reached 470 tons. Interestingly, there are rumors that bitcoin correction can lead to an increase in XAU / USD quotes.

In 2017, financial markets left the bipolar world. Both risky and reliable assets grew at the same time so it can not be said that the continuation of the S & P500 rally may not necessarily lead to a decrease in gold prices.

Dynamics of gold and S & P500

Source: Bloomberg.

Similar interruptions are provided by intermarket analysis when it comes to forecasting further dynamics of precious metals depending on the trajectory of the federal funds rate. Theoretically, the tightening of the monetary policy of the Fed leads to an increase in the cost of borrowing. Simply put, it is the growth rates of the US debt market. Not yielding income to its owners, gold loses to bonds, and the flow of capital leads to the fall of XAU / USD. In practice, everything looks a bit different. At the end of 2015, the Federal Reserve launched the process of normalizing monetary policy. Precious metals then was worth about $ 1,060 per ounce. By the end of 2017, the rate will be raised for the fifth time and prices have added about $ 200.

First of all, gold reacts to the real yield of US Treasury bonds and to the USD index. At the same time, the implementation of the tax reform in the United States can inflate both indicators. That is why the "bulls" for XAU / USD are currently feeling unwell. Nevertheless, the transition to normalization of the monetary policy of the central banks and the competitors of the Fed in the second half of 2018 will strengthen their currencies and create prerequisites for a gradual increase in the value of precious metals.

Technically, the output of quotations outside the upstream trading channel increases the risk of activating the "Shark" pattern with a target of 88.6%. It corresponds to $ 1145 per ounce. The necessary conditions for the implementation of this scenario are assured to support tests for $ 1240 and $ 1200-1205.

Gold, daily chart