The fall in business activity in the US manufacturing sector to the area of a 10-year low drove the arrogance of gold sellers, but did not convince buyers to return to long positions. The bulls are seriously frightened by the collapse of XAU/USD quotes and want additional arguments in favor of the restoration of the trend. For example, weak statistics on the US labor market for September, which will convince the Federal Reserve of the need to further reduce the rate on federal funds.

After four quarters of growth, which is the longest series in the last 8 years, the precious metal has entered a correction. Growing net long positions, speculators realized that they had gone too far. They were guided by the idea of slowing down the global economy, record low profitability of the global debt market and the Fed's focus on easing monetary policy for preventive purposes. In fact, if the next round of US-China trade negotiations ends with a breakthrough, global GDP will begin to regain lost ground, US stock indices will refresh record highs, risk appetite will increase, and safe haven assets will come under pressure.

It is not a fact that global debt market rates will continue to go down. Investors are actively discussing the version that central banks have overdone easing monetary policy. They are unable to cope with trade wars, and it takes fiscal stimulus, not monetary, to keep the affected economies afloat. Contrary to the federal funds rate cut, the US dollar is not going to fall. As a result, the XAU/USD "bears" had serious arguments for attacks, although not all "bulls" intend to give up. In particular, TD Securities believes that the precious metal can still grow to $1,600 per ounce.

The precious metal's fans bet on the deterioration of relations between Washington and Beijing. As the index of purchasing managers in the manufacturing sector shows, the US economy is already beginning to feel the pain of trade wars. If GDP, instead of the 2.3% expected by Bloomberg analysts, grows in 2019 by 1.5% or less, the Fed will be forced to aggressively weaken its monetary policy. This will strike both the US dollar and the yield on Treasury bonds, and lend a helping hand to gold.

US GDP dynamics

Thus, the precious metal is unlikely to determine the further direction of its movement after the release of data on business activity and the US labor market. It needs information on the course of trade negotiations between Washington and Beijing. In my opinion, the risks of escalating the conflict are great: if Donald Trump agrees to a partial agreement, the Democratic opponents will actively criticize him. But there are no special prerequisites for concluding a comprehensive agreement: the positions of the conflicting parties vary significantly.

Technically, a head and shoulders reversal pattern was formed on the daily gold chart. Quotes may go down to the target for this model, which is near $1412 per ounce. On the contrary, if the "bulls" manage to return them above the neckline ($1490-1500), their chances of restoring the upward trend will increase significantly.