FX.co ★ Gold will choose its way

The stabilization of gold prices ahead of the announcement of the FOMC minutes seems to be the calm before the storm. The precious metal has always been sensitive to the Federal Reserve's decisions. Now the gold prices are stuck because the US central bank's position is not as transparent as investors would like it to be. The acceleration of the US GDP to 3.2% in the first quarter gives hints about a possible resumption of the monetary policy normalization cycle in order to prevent the economy from overheating. On the contrary, sluggish inflation allows CME derivatives to increase the chances of reducing the federal funds rate by at least 25 bp in 2019 to almost 70%. Which way will the Fed choose?

The fate of many financial assets depends on the regulator's decision. If Jerome Powell hints at monetary expansion, the US dollar will weaken and gold, on the contrary, will strengthen. The Fed chairman's optimism and his belief in a rate hike, if not in this, and next year may directly lead to opposite results. The precious metal is highly dependent on the US currency. This is likely to lead to its rapid rally in January, followed by a close in the red zone for three consecutive months. At the beginning of the year after the Fed changed its outlook, investors expected the weakening of the greenback. However, the divergence in the economic growth of the US and other countries of the world, the high attractiveness of US-issued securities and dovish rhetoric of central banks and competitors of the Fed forced them to change their opinion.

At the same time, there is a lot going on in the market: hopes for the end of the trade war between Washington and Beijing, the V-shaped recovery of China's economy, the growth of global demand and the recovery of German exports. Nonetheless none of them will make any difference to the euro which growth may slow down noticeably. In the first quarter, eurozone GDP grew by 1.5%. This is less than its US counterpart. However, we should understand that the American economy has accelerated due to a large-scale fiscal stimulus. Besides, the effect of tax reform will gradually come to naught. At the same time, the countries of the currency bloc can afford fiscal stimulus, which will accelerate GDP.

The dynamics of the US GDP and the eurozone

Gold daily chart