A strong report on the US labor market somewhat cooled the ardor of precious metal admirers. Amid reports of employment growth outside the agricultural sector, ETF stocks dropped by 5.3 tons immediately since February. A rather noticeable loss, given the fact that the figure had increased by 25 tons over the previous four days. Profit taking on long positions contributes to the development of XAU/USD consolidation.
From the levels of the November lows, precious metals rose by almost 10%. The rally accelerated in December as US stock indices fell in January due to a change in the Fed's rhetoric. Jerome Powell and his colleagues talking about the need for a long pause in the process of normalizing monetary policy in large numbers. It will drag on at least until June, according to the President of the Federal Reserve Bank of Dallas, Robert Kaplan. At the same time, gold is supported by geopolitical risks aside from concerns over the fate of the global economy and low rates of the global debt market. Donald Trump announced his intention to dislodge the necessary money from the US Congress to build a wall on the border with Mexico. Otherwise, we are waiting for re-disabling the government. According to estimates of the Budget Committee, it will cost the US economy $3 trillion initially.
The dynamics of supply managers' indices convince the further slowdown of the world economy. Business activity in the United States began to fall in the fourth quarter and much earlier in the eurozone and China, which caused the weakness of the euro and the yuan in 2018.
Dynamics of business activity indexes
Perhaps the main culprits of hitting the XAU/USD bulls are weak currency competitors of the US dollar. The euro cannot move higher when Italy's economy falls into a technical recession while France's PMI indicates an early recession. The European retail sales are declining at the highest rates since 2011 and the European Commission significantly cuts the forecast for GDP currency block from 1.9% to 1.4%.
At the same time, the weakness of the world economy and the passivity of central banks associated with it should have a positive effect on gold in the future. The fact is that the propensity of regulators to soft monetary policy reduces the yield of bonds. The attractiveness of a precious metal that does not provide its interest holders grows, similarly to its share in investment portfolios. Thus, the longer the global economy feels unimportant and the lower the rates on debt markets are, the greater the chances for the XAU/USD rally to continue.
For the resumption of the upward trajectory, gold will require disappointing macroeconomic statistics for the United States, which will lead to a weakening of the US dollar. In my opinion, traditionally bad weather for this time, the manifestation of the effect of turning off the government and the fading of the fiscal stimulus suggest that the indicators will deteriorate.
Technically, the idea of implementing the target of 161.8% using the AB = CD pattern is still relevant, there is no reason to doubt the upward strength. Therefore, it makes sense to use kickbacks to support for $1,310 and $1,300 per ounce in forming long positions.
Gold daily chart
