The higher the gold futures quotes rise, the more bulls become bolder. Goldman Sachs predicts that the precious metal will rise to $1,600 per ounce in 6 months. Citi is confident that he will conquer this mark within 6-12 months. BofA Merrill Lynch believes gold will rewrite a historic high of $1,921 and reach $2,000 an ounce in two years. However, few believed in the growth of XAU/USD above $1,500 at the beginning of the year. Then, it seemed that the Fed’s passivity and de-escalation of the US-China trade conflict were creating a fair wind for the global economy. The reality turned out to be different.
Precious metal comes on all fronts as hedge funds at the end of the week by August 6 increased net longs to the maximum levels for the last two years and the inflow of capital into the ETF does not stop for a moment. Also, Central banks bought 374 tons in the first half of the year and are ready to rewrite the record of 2018 and then they purchased 650 tons of gold for 12 months.
The dynamics of speculative positions and gold
The main drivers of the XAU/USD rally are the slowdown in global GDP and the inability of central banks to cope with it. The Fed lowers rates in response to increased international risks and the ECB in response to the growing likelihood of a recession in the German economy. However, the potential for monetary expansion of many of the world’s leading regulators is limited. Their rates are already negative. At the same time, rumors of a slowdown in the global economy and a massive monetary stimulus are pushing bond yields down. Already $15 trillion in global debt market assets are being traded at negative rates. In fact, investors pay for placing their own money and the slower inflation rises, the more they are willing to pay.
Dynamics of negative yield bonds
Why bear the cost if you can buy gold? It does not bring interest income, but this is not necessary in the conditions of an approaching recession. Money needs to be saved, we always have time to earn. This principle guides investors and increase the share of precious metals in portfolios.
Oil in the fire of the XAU/USD rally is adding to the aggravation of political risks in Britain, Argentina and Hong Kong, as well as talk that the most pessimistic options for the development of events, have not yet been taken into account in quotes of financial instruments. As US stock indices enter a full-blown correction due to the disruption of the next round of US-China trade negotiations in September, gold purchases will gain new momentum. In this regard, the forecasts that the analyzed asset will reach the level of $1600 per ounce do not look like a pipe dream.
In favor of the XAU/USD “bulls” is the growing likelihood of a weakening monetary policy of the Fed. The derivatives market gives a 100% and a 25% probability of a federal funds rate cut of 25 and 50 bp at the September FOMC meeting. The chances of her falling from 2.25% to 1.5% before the end of 2019 are slightly less than 90%.
Technically, precious metals moving beyond the long-term consolidation range of $1100-1400 per ounce, followed by activation of the AB = CD and Bat patterns, increase the risks of continuing the upward campaign to $1625 and $1815.
Gold monthly chart
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