Gold growth halted but with upside risks
The pressure on risk assets on 31 December and 2 January, including a 1.5% rise in the dollar over the period, has not prevented Gold from strengthening. Although the market amplitude is still rather unimpressive, a simultaneous rise in the dollar and gold as equities fall is characteristic of periods of safe-haven traction.
If these sentiments find a solid footing, we could see the dollar's bullish momentum develop. Much depends on the trade war situation. The further distancing of production chains is a signal for global speculators to step up their gold buying in anticipation of China and other emerging markets favouring gold over dollar-denominated bonds.
As with tariff uncertainty, the technical picture offers arguments for both bulls and bears.
Gold tested its 50-day moving average in the first trading session of the new year. A dip below it in November broke the uptrend and sent gold into a consolidation phase after a 12-month rally of more than 50%. Failure to stay above this curve for long in November, December and early January looks like a bearish signal: too many sellers looking to take profits.
However, the longer-term picture is bearish as the recent pullback looks like a shallow correction to the 76.4% level of the advance. Such shallow corrections are characteristic of strong bull markets. Breaking through the historic highs above $2800 in the next few months will signal the start of growth towards the $3400 area. The cancellation of this scenario will be a failure below $2550 ($100 below current prices), but even then, there is a chance that we will see a transition to a classic correction rather than a long-term reversal.
Author
Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.
