Gold’s biggest weekly gain since March has likely opened the doors for a convincing break above the 200-day moving average (MA).
At press time, the safe haven yellow metal traded at $1,247; up 2.10 percent on the week - its biggest weekly gain since the third week of March.
A host of factors likely played a role in pushing prices higher this week.
To start with, the US-China trade truce put a bid under the risk assets on Monday, sending the US dollar lower across the board.
As a result, gold crossed the resistance of a key falling trendline on Monday, confirming a resumption of the rally from the November low of $1,196.
The bull breakout happened at an opportune time, in a sense that a section of the US Treasury yield curve inverted on Tuesday, triggering recession fears and risk aversion in the equities.
Further, optimism generated by the US-China trade truce quickly fizzled out after the arrest of the high profile Chinese telecom executive.
If that wasn't enough, the Wall Street Journal reported on Thursday that the Fed is considering adopting a wait-and-watch approach in 2019 and the dovish change in the forward guidance will likely be communicated via December policy statement.
And last but not the least, the November payrolls figure ad wage growth number came in well below estimates.
All this likely helped the “zero-yielding” safe haven yellow metal capitalize on the bull breakout seen on Monday and print a 5-month high of $1,250.
The technical charts are now calling for a break above the 200-day MA, currently lined up at $1,256.
That, however, may not happen if the US CPI, due for release for Wednesday, blows past expectations. Moreover, a big beat may force the Fed to focus on inflation control.
Over on the daily chart, gold has established another bullish higher-high with a break above the Oct. 26 high of $1,246, validating the bullish view put forward by the ascending 5- and 10-day SMAs.
Scaled in November, the 50- and 100-day MAs are also beginning to rise in favor of the bulls. What’s more, the 14-day relative strength index (RSI) is also biased bullish above 50.00.
Gold, therefore, looks set to test the 200-day MA, currently at $1,256. In fact, a short duration technical chart is indicating scope for a rally to levels well above the long-term MA hurdle.
The pennant breakout – a bullish continuation pattern – has opened up upside toward $1,268 (target as per the measured height method).
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