We should Sell XAU/USD and buy BRENT
The forecast for the week of March 28 - April 1:
March has ended and if you look at the history of the last ten years, this month "yellow metal" can turn into an active asset. In seven cases out of ten, we had observed a drop of prices. Will this trend continue this time? In my opinion, it will and it is based on three reasons. The first reason - strengthening of the US dollar in the currency market. Investors augment their long positions on pullbacks, since reduction of the interest rate in the Euro area and Japan makes market playes choose US bonds, which show a moderate, but notable growth. The second reason – correlation between the precious metal and inflation. The reports on inflation in the UK and Japan published the last week can not encourage "bulls". G-7 economies still do not show growth of the inflation pressure, which does not support gold , because there is no need to hedge inflation risks. The third reason is disregard of global tensions. Despite the terrorist attacks in Brussels the last week, gold finished the week with 3% loss. Investors ignored this background, which is also a wake-up call for tradersThis week we open Sell positions on growth of quotations to 1225/1245 and take profit at 1193.
The last trading week of the black gold has finished in the "red zone": drop of quotations was 2.24%. In this context, many traders ask a question: can we expect a new wave of sales or it is just a technical correction? Personally, I am in favor of the latter for three reasons. Firstly, investors are still waiting for key events of the first half of the year – the meeting of leading players in Qatar on April 17, and to this date no one will build up short positions. Secondly, Baker Hughes reported about drop of the number of working drilling rigs once again. During the last week, the number of plants was reduced by 15 units in the United States and Canada by one unit. Third, gasoline reserves have been dropping for the fifth week in run. During this period reserves were reduced by 13.6 million barrels. Crude oil reserves are growing, but the growth rate is modest against the previous year: at the beginning of this year, reserves increased by 45.12 million barrels, which is by 44.4% less than the same period last year. Thus, drop of quotations to 40.00/38.50 should be used to open Buy positions and take profit at 42.50.
During the week, we should expect a moderate growth of quotations. The final release of the US GDP for the 4th quarter encouraged investors: the figure was revised by 0.4% increasingly. A continued demand in the "black gold" will contribute to growth of quotations in the energy sector, which will support the US equity market. We can not ignore outflow of capital from the "safe" assets: the last week, the Japanese Yen and gold lost 1.37% and 3%, respectively, despite outburst of global tensions. Capital usually leaves the "safe harbor" to risky assets, which also allows us expect growth of S&P500 index. However, this is also a negative factor. Report on portfolio investment in Japan indicates an increase in demand in bonds and capital outflows out of the stock market. Japanese institutional investors are among the active players on the US stock market. In this regard, we should not rely on strong growth of quotations this week and choose a more conservative approach. So, this week we should open Buy positions on drop of quotations to 2028/2005 and take profit at 2050.
Alexander GoryachevAnalyst of «FreshForex» company
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