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review + “chips” for analysis

Hello everyone!

This post can be viewed as an overview of the current situation on GOLD (XAUUSD) + educational content, useful for both beginners and those who are already trading / investing in gold.

Let’s start with an overview of the current situation:

Since August, gold has been in a correctional decline to the previous wave of growth, but in the last couple of months there are signs of renewed growth, namely, the low of January of this year is higher than the December one. Closing of yesterday’s daily candle (upward breakdown of local resistance) gives preconditions for a short-term upward impulse in the region of $ 1950-1960 (and maybe higher, there according to the situation), which implies the opportunity to open a long trade at the current price, setting the stop loss at $ 1800

Now let’s discuss what influences the dynamics of gold, what to look for?

By and large, these are two components: currency market (DXY dollar index) and dynamics of US government bond yields

Ideas have already been published on DXY several times, the bottom line is that now is a defining moment, since approximately from the current levels (range 88-91) in 2018 there was a reversal upward in the dollar. The relationship with gold is the opposite, the lower the $, the higher the gold and vice versa. Even on the example of the last days, it can be seen, the DXY began to roll back down from the resistance of 90.94, followed by the renewed growth of GOLD. That is, in order to continue the medium / long-term growth in gold (with targets above $ 2100), it is necessary for the DXY to break down and fix below 88 points.

Bonds… notice the strong relationship with the yields on US government bonds maturing in 10 years (top right) and gold! The downward reversal in gold and upward in bond yields last year occurred almost at the same time, in early August (highlighted with vertical lines). The opposite also happened, the beginning of GOLD growth in 2018 coincided with a decline in yields. In the last few days, the growth of yields stopped = gold bounced up.

There is another important feature in this correlation, you also need to take into account the key rate of the US Federal Reserve and inflation, more specifically, it is important for gold what the current real rates in the market are, positive or negative. The lower the value at negative rates, the higher the gold and vice versa. Real rates are determined as follows: (% US Federal Reserve – growth rate in% annual inflation).
The relationship with gold in this case is explained by the fact that with negative real rates, the yields on fixed income instruments do not cover inflation, respectively, money depreciates, in this case, GOLD is an alternative among defensive assets!

By the way, if you look at the ratio of gold to the US money supply, we will see tremendous potential for growth ($ 3,750-4,000), gold is now just below the 2011 highs, but then the money supply was $ 9.6 trillion, and now $ 19.2 trillion, that is , money has doubled, and gold is valued at par as well, I think it’s a matter of time when the revaluation will take place!

GOLD - overview + "chips" for analysis

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