Gold continues to consolidate in the $1300-1320 range per ounce against the backdrop of uncertainty about the outcome of the US-China trade negotiations. The US stocks with applause greeted Donald Trump's statement about a possible shift of the date in tariff increase from 10% to 25% for $200 billion of the Middle Kingdom's imports from March 1 to a later period. Meanwhile, the yield of treasury bonds remained almost unchanged. Working in the debt market, investors are well aware that the game with the terms does not remove the uncertainty, but only prolongs its life. While the issue has not yet been resolved, it's too early to rejoice, which means that the demand for safe-haven assets will be high.
The precious metal reacts sensitively to the real yield of US bonds, as well as, the dynamics of the US dollar and the change in the global risk appetite. In this regard, the increase in the share of investors polled by Bank of America Merrill Lynch, who assume that the S&P 500 has reached its ceiling, creates a solid foundation for the upward trend in XAU/USD from 11% in September to 34% in February. Given the potential slowdown in US consumer prices to 1.5% in January, the real rates of the US debt market will remain under pressure, which gives a helping hand to the bulls on gold. If it isn't for the strong position of the US dollar, the rally probably would have continued.
In the physical asset market after an impressive 70 tons of ETF reserves growth in January, the figure dropped by 20 tons in February. China buys precious metals for the second time in a row to replenish reserves. In December, it was about 10 tons and in January, it is estimated at 11.8 tons. The Middle Kingdom has the sixth largest figure in the world, while the share of gold in the gold and foreign exchange reserves has a modest value of 2.4%. In comparison, Germany in the United States is around 70%. Amid a slowdown in the local economy and uncertainty about the outcome of trade negotiations with Washington, Beijing has significant potential to increase the share of gold in reserves. At the same time, Goldman Sachs predicts that central banks will buy as much gold (650 tons) in 2019 as much as in 2018 due to increased geopolitical uncertainty and reduced pressure on the currencies of developing countries.
Dynamics of Chinese gold reserves
Thus, the offensive outburst of the bulls on XAU/USD was held back by a strong dollar. But after the "dovish" rhetoric of Jerome Powell in January, many banks and investment companies painted a "bearish" picture for him. In fact, there are always two currencies in any pair, thus its quotes depend not only on the Fed but also on competing central banks. The latter took the fashion to either maintain the previous parameters of monetary policy or hint at its easing. As a result, the "American" looks like the cleanest shirt among the dirty laundry, which does not allow gold to spread its wings.
In the technical aspect, the strategies of forming long positions at the end of the supports for $1,310 and $ 1,300 per ounce are still working but to continue the rally, the bulls on the precious metal must take the resistance by storm at $1,322.
Gold daily chart
