Donald Trump stopped the offensive rush of XAU/USD bulls, as he mentioned that the deal with China would be concluded earlier than what people thought and on favorable terms for the United States. Stock indices reacted to the words of the US president with friendly growth, and the improvement in the global risk appetite forced some buyers of gold to take profits. However, the market has long been accustomed to believe in actions rather than words, so without signs of a de-escalation of the trade conflict, the S&P 500 is unlikely to recover lost ground. Over the past 9 days, it closed in the red zone 6 times and lost about 3.9% of its value.
The trade war has kept on going, which adversely affects international trade and allows the IMF to predict the slowest growth in global GDP since the global economic crisis of 2008. According to two of the three Bloomberg experts, China and the US will sign an agreement this year, almost one fifth of respondents believe that this will happen in 2020, about 13% of analysts think that the dispute will not be resolved within five years. 45% of 40 economists predict that in response to the slowdown in the US economy due to the adverse impact of high tariffs, the Fed will be forced to lower the federal funds rate. Donald Trump calls on the central bank to do it now in order to win the trade war. They say that Beijing will pour a lot of money into it to keep its economy afloat, and if Jerome Powell and his team do the same, then China will have to accept the conditions set by the United States. Reviving QE, according to the owner of the White House, can accelerate US GDP to 5%, and who can resist such a powerful rival?
Fears about the fate of the world economy, falling stock indices and yields on treasury bonds, as well as an increase in the likelihood of the Fed's monetary expansion create fertile ground for the return of gold bulls. The growth of open interest in the precious metal market is a confirmation of this assumption.
Dynamics of open interest in gold
In my opinion, if it were not for the stability of the US dollar, gold would already have been quoted at least at $1320-1330 per ounce. It is interesting that the USD index positively perceived the words of Donald Trump regarding the signing of a contract with China and the associated rally of US stock indices. High rates of debt market in the United States relative to other developed countries deprive its currency unit of the status of the funding currency, therefore the escalation of the conflict leads to an increase in EUR/USD and a fall in USD/JPY and vice versa. Uncertainty adds fuel to the fire. Most likely, before the June meeting of Donald Trump and Xi Jinping at the G20 summit in Japan, the situation with the trade wars will not be clarified, which should be regarded as a bullish factor for XAU/USD.
Technically, on the daily gold chart, the implementation of the "Wolfe Wave" pattern continues, the first target of which is located near the $1,320 mark per ounce. The breakthrough of resistance is in the form of the upper boundary of the downward trading channel which makes it possible for bulls to enter the operational space.