Faced with its worst monthly performance in 4.5 years in June, gold is gradually recovering and even trying to cling to the psychologically important level of $1,800 per ounce amid deteriorating global risk appetite and falling US Treasury yields. Perhaps the devil is not so terrible as he is painted, and the precious metal will be able to lick its wounds. Or, on the contrary, will there be a downward long-term trend in XAU/USD?

Monthly gold dynamics

The answer to this question is not easy. Despite the massive sell-off in early summer, investors continue to hold on to their investments in gold-oriented ETFs, and AvaTrade believes that after a series of disappointing US data, the Fed will decide to keep its ultra-soft monetary policy for longer, and the euphoria of the markets over the acceleration of inflation and rapid GDP growth will disappear. Treasury yields will continue to fall, allowing the precious metal to return above $1,900 an ounce. The Scottish Investment Fund predicts that inflation will soon get out of the control of the Fed, which will have a favorable effect on the prices of the analyzed asset. The company suggests recalling the history of the 1970s, when against the background of the unrestrained growth of CPI, the regulator felt like a fish out of the water.

On the opposite side of the barricades is Morgan Stanley, which claims that the strengthening of the US dollar and higher real rates on US debt will continue to make gold a whipping boy. As a result, it will fall to $1,700 per ounce over the next 6 months. According to JP Morgan, Treasury yields do look very low in terms of a model based on economic growth and monetary policy. The company attributes this to overly inflated speculative net shorts, which from time to time close amid disappointing US statistics, such as after the publication of data on June business activity in the US non-manufacturing sector from the Institute for Supply Management.

Deviations of US Treasury bond yields from fair value

In my opinion, gold is like a barbell. It feels good at extreme points - in times of excessively high or, conversely, excessively low inflation. Today, the American and other economies of the world are somewhere in between, which creates serious pressure on the precious metal.

In addition, you need to understand that it is not reacting to inflation itself, but to what the Fed thinks about inflation. In this respect, the calculation of investors that the further fate of XAU/USD will be decided by the minutes of the June FOMC meeting looks logical. Seven members of the Open Market Committee believe that rates will be raised in 2022, six expect that this will happen in 2023, and the rest predict a later tightening of monetary policy.

Technically, the rebound of gold after it reaches the intermediate target of 61.8% according to the Shark pattern seems logical. An unsuccessful storm of resistance at $1,813 per ounce (38.2% Fibonacci of the CD wave) followed by a fall below $1,793 (23.6%) is a reason for selling.

Gold, Daily chart