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XAU/USD forecast for 12.05.2020

May 12, 2020

May 12, 2020

Gold: never say neverDmitri Demidenko

The talks that the Fed can follow the way of the BoJ and the ECB

increase the demand for gold

Increased demand for the US dollar weighs on gold. The issue of the US- China trade war hasn’t been settled down, and the risks of the second wave of the pandemic and the long time it should take the global GDP to recover increase the demand for safe-havens. The market is scared, and it for the first time bets on the Fed’s rate cut below zero. According to the FOMC officials, this scenario is either extremely unlikely or impossible. However, investors stick to a wise saying “never say never”.

According to BofA Securities, the options market has increased the chance of the Fed’s rate cut below zero by late December from 9%-10% to 23% in a week. The CME derivatives indicated the interest rate cut into the negative area until the FOMC officials started to actively reject such a possibility. According to Atlanta Fed’s president Raphael Bostic and St. Louis Fed’s president James Bullard, the Fed has other tools to manage the situation. Bullard notes the ultra-easy monetary policies of other central banks have produced a little effect in this sphere, and the difference in the structure of short-term lending markets in the USA, Japan, and Europe makes it difficult to use negative interest rates in the USA. In fact, not only investors and banks could suffer, but the entire industry of the US financial funds as well. Therefore, the cure can do more harm than the illness. The rate cut below zero aims at increasing the domestic demand, but it can’t make people, scared by the pandemic, go away and spend money.

Jerome Powell, who earlier claimed that the negative borrowing costs will hardly support the US economy, is expected to return to this topic in his speech on May 13. This could support the greenback and press down gold. However, the funds flow into gold ETFs is growing, which signals that investors are willing to put up with a short-term drop and believe in the [XAU/USD][1] rally in the future. Over almost five past months, the capital inflow in the ETFs has reached about $14.5 billion, exceeding the yearly performance in 2009. The capital inflow into the biggest ETF, SPDR Gold Shares, has been the greatest over the past 11 years.

Dynamics of SPDR Gold Shares fund flows

![LiteForex: XAU/USD forecast for 12.05.2020][2]

Source: Bloomberg

Never say never. Not long ago, the Fed opposed Donald Trump’s calls to lower the interest rates to the levels of Germany and Japan, so that the US economy could be an efficient competitor to these countries. The longer lasts the pandemic, the higher is the chance of the federal funds rate cut below zero. Also because the US President again criticizes Jerome Powell and his fellow central bankers.

Yes, the dollar smile theory can still work out, and this increases the chance of the gold price correction. Therefore, I stick to my [forecast][3] for the [XAU/USD][1] consolidation in the range of 1635-1775. Nonetheless, the main scenario still suggests buying gold when the price is being corrected down.

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Price chart of XAUUSD in real time mode

![Gold: never say never][6]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=XAUUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/spdr-gold-shares-12-05-20.jpg?w=30&s=779ec5cdb184b8492099a574d22d75e7
  3. www.liteforex.com/blog/analysts-opinions/gold-is-being-nostalgic/
  4. my.liteforex.com/?category=analysts-opinions&slug=gold-never-say-never&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
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  6. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-gold-12-05-20.jpg?q=75&w=1000&s=d6e4050a122eacb88f53ede092108c3f