Gold answers with tooth for tooth
Gold quite rapidly responded to the United States and China's transition from a conflict to massive military action. China is ready to to retaliate in the "tit for tat", answering exactly the same way as its opponent. If the introduction of Washington's import duties on steel and aluminum on Beijing is estimated at $3 billion, then $50 billion was announced to match it for the Washington's allegations of violation of intellectual property rights along with duties for the supply of 106 US products, including soybeans, chemicals, airplanes and cars. According to China, the accusations are unproven, unilateral protectionism is flourishing, and the beast must be planted back into the cage.
It seems that Donald Trump has found a worthy opponent capable of putting an end to his desire to reduce the negative balance of foreign trade from the current $375 billion to a hundred billion. China is ready to defend its own interests, but the trade war does not bring anything good. Like any war, in principle. The slowdown in global GDP as a result of supply chain disruption, the acceleration of inflation under the influence of rising import prices and the aggressive monetary tightening of the Fed are bringing the US economy closer to a recession. The situation is aggravated by the growth of the national debt, which must be financed, and the problems in this area put serious pressure on the US dollar.
Indeed, if we assume that the United States will not stop at this and will pay all Chinese import duties, then China will have to take other measures, since supplies from the United States are less than its own in the opposite direction. An adequate response will require the sale of treasury bonds, rumors about it a few weeks ago, the dollar dropped. The greenbacks weakness can push gold to around $1,400 an ounce and higher, which significantly exceeds the median forecast of Bloomberg experts.
Forecasts and dynamics of gold
Traders with 40-year experience note that for several decades, precious metal has been sensitive to the USD index and the yield of US bonds. In this regard, its limited sensitivity to the trade war looks logical: despite the collapse of the stock indices, the dollar has remained stable. Perhaps the reason should be sought in the fact that the duties are not yet in effect, or that they may not do so at all. It is likely that Beijing and Washington will sit at the negotiating table, and their constructive nature will allow investors to turn their heads again towards the Fed. Thus, BNP Paribas claims that gold will close the year in the red zone, and IHS Markit expects prices to fall below $1200 on the background of four increases in the federal funds rate.
Unlike "bears" in precious metals, central banks continue to believe in its bright future. Thus, the Russian regulator in February added 22.8 tonnes to gold and currency reserves after 18.9 tonnes in January and 224 tonnes in 2017. The growth rate is the 11th consecutive month.
Technically, a breakthrough in resistance at $1357-1362 per ounce will open the way for bulls to target 127.2% and 161.8% for the AB = CD pattern. They are located near the marks of $1390 and $1405.
Gold, daily chart
Analysis are provided by InstaForex