Last year was the best year for gold since 2010. The precious metal managed to increase its value for the second time in a row due to the weakness of the US dollar, rates on long-term US debts refusing to increase, periodically flashing geopolitical risks, and also due to uncertainty surrounding the tax reform and the ceiling of the national debt. At the same time, fiscal stimuli was unable to lead to large-scale purchases of the US currency, which provoked the rapid rally of XAU/USD at the turn of 2017 and 2018: gold grew during 8 consecutive trading sessions, reaching a peak mark last seen in September. The winning streak is the longest since February 2014.

Annual dynamics of gold

Source: Bloomberg.

The Fed persistently talks about three acts of monetary tightening, while the futures market estimate the likelihood of such an outcome to be only at 42%. Investors do not particularly believe in the dollar and prefer to keep long-term bonds. The dynamics of these indicators will determine the fate of the precious metal in 2018. Last year, the USD index showed the worst result since 2003, which laid the foundation for a 13% rally of the XAU/USD.

The "greenback" still needs to prove that the tax reform will lead to an acceleration of the US economy towards a permanent 3%. At the same time, the potential slowdown in GDP in the fourth quarter, as shown by the dynamics of the leading indicator from the Federal Reserve Bank of Atlanta, puts the stick in the wheel of the dollar's fans. On the contrary, its competitors are full of optimism. The speeches of Benoit Coeure and Ewald Nowotny about the completion of the European QE in 2018, coupled with strong data on the business activity of the eurozone and on German inflation, allowed the bulls for the EUR/USD to approach the level of the 3-year peak.

Gold can be supported by a correction of the S&P 500, which has been overestimated from a fundamental point of view, against the backdrop of the "Buy on the rumor, sell on facts" principle. The activity of buyers in the stock market was due to hopes for the dispersal of the US economy through tax reform. If they do not see this within the next 2-3 months, the risks of a rollback of stock indices will increase.

Dynamics of the S&P 500 and its estimates in terms of P/E

Source: Bloomberg.

Nevertheless, the consensus assessment of Bloomberg analysts suggests that at the end of 2018 precious metal will cost $1,290 per ounce, while the difference between the most bullish and the most bearish forecast is $700. In my opinion, the moderately pessimistic views on the outlook for XAU/USD are due to the hopes for an increase in the yield of 10-year US and German bonds by 45 bpts from 2.45% to 2.9% and from 0.45% to 0.9%. If, under such conditions, inflation in the US and the euro area remains subdued, then the growth of real interest rates on debts will increase the risks of gold sales. The short-term outlook for its dynamics will be affected by the publication of the minutes of the last meeting of the FOMC and the report on the US labor market for December.

Technically, the implementation of the "Deception-ejection" pattern allowed the "bulls" to count on the implementation of the target by 88.6% on the "Shark" pattern. True, a reliable attack on $1320-1321 is needed first.

Gold, daily chart