After a tumultuous rally in the first half of spring, gold was stuck for a month in the consolidation range of $1665-1745 an ounce, which narrowed further amid rumors of a federal funds rate cut below zero. For the first time in history, the futures market began to put the probability of such a scenario in the quotes of its instruments, first by the end of 2020, and then, after dissatisfied comments from FOMC officials, by the middle of 2021. However, the words of Donald Trump that he expects a gift from the Fed in the form of negative rates, added fuel to the fire. Now investors want to hear a speech by Jerome Powell, during which this topic will surely come up.

Lower borrowing costs are usually regarded as a "bullish" factor for XAU/USD, as it contributes to the weakening of the US dollar and leads to a fall in Treasury bond yields. If it is high, then gold that does not generate income in the form of interest or dividends cannot compete with debt obligations. Reducing rates on bonds, on the contrary, allows the precious metal to spread its wings.

Dynamics of gold and US bond yields

Due to trade wars, pandemics, and recessions, the yield of global debt market instruments is constantly going down, which creates a solid foundation under the upward trend for XAU/USD. If the Fed does go along with Donald Trump (admittedly, not the first time), then the path to $1800 per ounce for gold will be open. While the probability of such a scenario is low, however, it is not necessary to discount negative rates on federal funds. This circumstance, along with the major world currencies weakened by large-scale monetary expansion, increases the investment demand for the precious metal. In April, stocks of the largest specialized fund SPDR Gold Shares registered a record increase in 11 years, and capital inflows to gold-oriented ETFs for less than 5 months of 2020 amounted to 14.5 billion. For comparison, for the whole of 2009 - 11.7 billion.

At the same time, investors are looking with growing curiosity at the record high ratio of gold and silver, which reached 125 in March and has fallen slightly since then. The latter metal is highly dependent on industrial demand, and if the global economy starts to recover in the second half of the year, XAG/USD will go up. On the other hand, American GDP may not move along a V or U-shaped path, but face the same situation as in the 1930s, when industrial production halved, then slowly grew for four years, but subsequently went back to the bottom.

Dynamics of the ratio of gold and silver

In my opinion, the weakness of the main world currencies and the low rates of the global debt market paint a bullish picture for gold. A drop in its quotes to $1665 and $1635 or a breakthrough of resistance at $ 1720 per ounce should be used to form longs.

Technically, without the exit of the precious metal quotes outside the triangle, it will be difficult for it to determine the direction of further movement. The chances of implementing 161.8% targets for the parent and child patterns AB=CD are still high.

Gold, the daily chart