After it became known that North Korea, in honor of the 69th anniversary of its founding, did not launch another ballistic missile, and the consequences of the hurricane Irma were not as terrible as originally thought, gold was marked by the worst daily dynamics in the last two months. This recent rally was due to the escalation of the geopolitical conflict on the Korean peninsula, the fears of the impact of hurricanes on the US economy, and the weakness of the US dollar. These factors have for a while gone into the shadows, but hardly ever.
After the UN Security Council approved the expansion of the package of economic sanctions against Pyongyang, US stock indexes returned to growth and some of them managed to update to record levels. The increase in global appetite for risk is a “bearish” factor for the XAU / USD. The market was optimistic about the information that the final scale of sanctions was less than what Washington suggested, while Beijing and Moscow approved them. At the same time, an increase in economic pressure is unlikely to put North Korea on its knees. This means that geopolitics will certainly still make itself felt.
According to Goldman Sachs, hurricanes “Harvey” and “Irma” will slow the US GDP by 0.8 pp, which will potentially be able to keep the Fed from raising the rate for federal funds. Nevertheless, the damage assessment from Irma was reduced by insurance companies from $ 100 billion to $ 20-40 billion. In 2005, the Federal Reserve tightened its monetary policy even after the damage brought by the more serious hurricane, Katrina. Natural disasters, as a rule, lead to a temporary slowdown in GDP. And then, the economy accelerates and recovers because of reconstruction work.
The dynamics of the US dollar is of fundamental importance for precious metals.
Dynamics of gold and the USD index
Source: Trading Economics.
After inflation accelerated in China and in Britain under the influence of energy prices, investors began to look with hope at US consumer prices. The market is full of rumors that the probability of an increase in the Fed rate for the month of December is too low and will soon grow. This will support the dollar. However, traders should still be cautious against excessive euphoria about this. The Federal Reserve monitors core inflation, which does not take into account the prices of petroleum products.
A more powerful driver for strengthening the “Dollar” can be the passing of tax reform through the Congress. Add to that the infrastructure projects, which are now associated with the elimination of the consequences of hurricanes. Donald Trump commented in his Twitter that in the near future, the review of the largest changes in the tax system in US history will begin. He called on legislators to approve them as soon as possible. At the turn of 2016 and 2017, expectations of the economic crackdown under the influence of the president’s reforms forced the quotes of XAU / USD to collapse. If the idea is reanimated, then gold can go down south.
Technically, the inability of bulls to gain a foothold above an important resistance area of $ 1,245-1,251 per ounce indicates their weakness. The nearest support is near the $ 1320 mark, and in case of its successful assault, the bears will be able to develop a correction.
Gold, daily chart
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