Gold Price Forecast: logs longest monthly winning streak since September 2012, what's next?

Gold's four-month winning streak - the longest since September 2012 - could pause in February if the US data continues to beat estimates, forcing markets to reassess Fed outlook.

The yellow metal closed at $1,321 yesterday - up 3 percent from the monthly opening price of $1,282. Prices rallied 2.07, 0.59, and 4.91 percent, respectively, in the previous three months.

That is the longest stretch of monthly gains in nearly 6.5 years.

The rally has been primarily driven by dovish Fed expectations. The Fed hiked rates by 25 basis points in December and signaled two rate hikes in 2019. Markets, however, began pricing a pause in rate hikes, sending the zero-yielding metal higher.

Notably, the Fed delivered on market expectations earlier this week by signaling patience on rate hikes. Further, it expressed willingness to tweak its balance sheet normalization program, if required, accentuating bullish pressures around gold.

Put simply, the Fed is following the markets.

However, the labor market data released earlier today countered recession fears with a big beat on the headline non-farm payrolls figure. Notably, the economy created twice as many jobs as consensus estimates

So, it could be argued that the markets have likely run ahead of themselves in pricing a recession/rate pause. Further, the central bank seems to have gone too far in pleasing markets.

Investors, therefore, may reassess the Fed outlook next week, yielding a correction in gold. The yellow metal could see a deeper pullback in the next few weeks if the US data continues to beat market expectations, forcing the Fed to put its foot down and adopt a hawkish stance.

Gold is currently trading at $1,317 per Oz, having clocked a nine-month high of $1,326 yesterday. The price chart analysis favors a pullback to $1,300 in the next week or two.

4-hour chart

As seen above, the RSI has diverged in favor of the bears and the metal has dived out of the bullish channel. We also see a head-and-shoulders breakdown on the RSI. 

Daily chart

Consecutive failures at $1,321 - 78.6 percent Fibonacci retracement of the drop from $1,365 to $1,160 - validate the overbought conditions signaled by the 14-day relative strength index.

The immediate support of $1,308 and $,1300 could come into play next week. On the higher side, a close above $1,321 would signal a continuation of the recent rally.