In May, gold demonstrated which driver is the most important for it. Traditionally, the precious metal is considered to fall when stocks, the dollar, and the US Treasury bond yields rise. It cannot compete with interest-yielding debt obligations, sensitive to changes in the US currency exchange rate, since its value is expressed in it, and finally falls into a wave of sales in the context of improving global risk appetite. Spring has disrupted at least two of the three XAU/USD relationships with important assets. The fault is the recession.

In March, gold plunged into the abyss along with US stocks and quickly regained lost positions on the back of the S&P 500 rally. At the end of May, the stock index exceeded the psychologically important mark of 3000, its growth from the levels of the March bottom was 37%. Unfortunately, instead of moving to $1,800 per ounce, the precious metal unexpectedly reversed course for many. What is the reason for the return of the usual inverse correlation between XAU/USD and US stocks? In my opinion, it is buried in the fact that the market finally believed at the end of the recession.

At the end of spring, gold suddenly began to go down the same road with the US dollar. In my opinion, the status of a safe haven asset is returning to the precious metal. In this regard, Washington's response to the national security law adopted by China in relation to Hong Kong may support the "bulls" for XAU/USD. If, of course, it seriously scares the financial markets.

The only thing that has remained unchanged is the relationship of the precious metal with the dynamics of the real yield of US Treasury bonds. The fall in debt rates indicated pessimistic expectations about economic growth and inflation. As soon as optimism began to creep into the market, yields went up. Moreover, the Treasury's plans for a huge issue allow investors to get rid of bonds on the secondary market with the subsequent purchase of securities at auctions.

Dynamics of gold and US bond yields

Excessively high prices for precious metals and public fears due to coronavirus negatively affect consumer demand. Commerzbank notes that in April, China exported 14.5 tons to Hong Kong, and imported 4.2 tons. Thus, for the first time since the beginning of accounting in 2007, the net purchase of gold became negative. However, the decline in demand in the jewelry industry has so far been offset by an increase in interest in precious metals in the investment sector. In May alone, ETF stocks increased by 120 tons, which exceeds the combined imports of gold by China and India combined. If interest in the products of specialized funds begins to fade amid the global economic recovery, XAU/USD risks facing a correction.

Technically, the daily chart of gold has a pattern of "Deception-outlier". The inability of the "bulls" to implement the model "splash and a shelf" is a testament to their weakness. A break in support at $1700-1705 per ounce, where the middle of the "shelf" and an important pivot level are located, can become the basis for the formation of short-term shorts.

Gold, the daily chart