- Gold is reporting its biggest monthly gain since August 2019.
- January's price rise has confirmed a resumption of the rally from lows seen in May 2019.
- Safe haven flows and dovish Fed expectations could continue to push the yellow metal higher.
Gold has printed its biggest monthly gain in five months, signaling a resumption of the rally from lows near $1,266 seen in May 2019.
The yellow metal is currently trading at $1,585 per Oz, representing a 4.48% gain from the opening price of $1,517.70 observed on Jan. 2. That is the biggest monthly price rise since August 2019. Back then, gold had rallied by 7.65%.
Haven flows
The US-Iran tensions escalated on Jan. 3, putting a strong haven bid under gold. The yellow metal rose from $1,550 to a six-year high of $1,611 in the five days to Jan. 8.
The break above $1,600 seen during the Asian trading hours on Jan. 8 was short-lived, as tensions quickly eased after media outlets reported zero US casualties in Iran’s retaliatory attack on US bases in Iraq.
Gold fell back sharply to $1,550 on the same day and extended losses to $1,536 by Jan. 14, before regaining poise on coronavirus scare.
The mysterious Wuhan coronavirus spread quickly within China during the second half of the month. Cases were also registered in Japan and other Asian currencies and in the US and Europe. As a result, fear gripped markets that China is struggling to contain the virus and it could turn into a pandemic, derailing the global growth story.
Risk assets, therefore, took a beating and safe havens like gold, US treasuries, and yen found love.
Additionally, markets ramped up expectations for a Federal Reserve rate cut by December and the central bank reinforced the dovish expectations by reiterating its commitment to high inflation.
As a result, gold moved higher to $1,589 earlier Friday and is about to end the week with nearly 1 percent gain.
Looking forward, the coronavirus fears and the dovish Fed expectations could continue to push the yellow metal higher.
Many observers have revised lower their forecast for China’s first-quarter GDP growth. For instance, Citigroup on Friday said it expects China’s GDP growth to slow to 4.8% this quarter from 6.0% in the fourth quarter. It cut its full-year forecast for 2020 to 5.5% from 5.8, according to Bloomberg.
Further, analysts think the slowdown will force the Chinese government and the People’s Bank of China to take action. Yields on government bonds and currency usually drop with monetary easing, making the zero-yielding yellow metal look attractive.
As for next week, the focus will be on Caixin PMIs for China and key US data releases – ISM Manufacturing and Non-Manufacturing data, ADP report and the monthly Nonfarm Payrolls report.
Fed rate cut expectations would strengthen, possibly yielding a stronger rally in gold if the payrolls and wage growth figures disappoint expectations.
Technical outlook
The metal traded in a sideways manner for four months, starting from September to December. The range play has ended with a bullish breakout with January’s 4% gain.
The range breakout indicates the rally from the low of $1,266 seen in May 2019 has resumed.
The next major resistance as per the monthly chart is $1,733. That level marks the 78.6% Fibonacci retracement of the sell-off from $1,920.94 to $1,046.54.
The daily chart is also biased bullish. Notably, the RSI is again looking north, having established support at 62.00.
The odds appear stacked in favor of a re-test of the high of $1,611 registered on Jan. 8.
The outlook would turn bearish if and when the daily chart RSI violates the support at 62.
Monthly chart
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Weekly chart
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Gold Forecast Poll
The Forex Forecast Poll is a sentiment tool that highlights near- and medium-term price expectations from leading market experts. As can be seen, the market expects the safe-haven metal to fall back slightly to $1,582 next week and rise back to $1,587 over the next one month. The metal is seen around $1,576 three months from now.
The price of gold rose last week as investors concerns over a coronavirus outbreak in China. The gold is considered a safe place for values in сases of political and economic uncertainty
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