Will Gold Finally Break $1300 Hurdle?

01/29/19 04:43:37 PM

by Fawad Razaqzada

We are nearing the end of January already, so it might be a good time to wonder what the rest of 2019 will bring for investors. In this report, I will share my thoughts on metal prices.

Security: N/A
Position: N/A

Precious metals had been in consolidation mode for the past four weeks or so, until when this report was written on Friday, January 25. Gold had staged a three-month rally prior to its consolidation as it failed to penetrate the $1300 level at the turn of the year. However, the metal was showing relative strength again as it tried to break through this key hurdle. Silver had staged a sharp rally in December but faltered slightly in the early-to-mid parts of January, before pushing higher again with gold prices on Friday.

Looking ahead, I am slightly more optimistic than pessimistic when it comes to my outlook for gold and silver for at least the first half of 2019. But there is a tricky dilemma to consider.

On the one hand, the outlook for gold and other metals looks bullish in 2019. The fact that the Federal Reserve has stopped hiking interest rates should be good news for buck-denominated, noninterest-bearing and low-yielding assets, such as gold, silver and copper. The dollar could weaken again soon as the Fed will likely re-iterate the need to pause its rate-hiking cycle in order to assess the impact of the past rate increases and as it awaits fresh macro data before deciding on lifting rates again. In addition to a weaker dollar boosting gold prices, the Chinese yuan could stage a more meaningful comeback if there is a resolution in US-China trade spat. A stronger renminbi would make gold more affordable and therefore boost its demand from one of the wold's largest consumer nations of gold. Furthermore, some market commentators believe the US stock markets may have already topped out last year and argue that if we see further weakness in 2019 then this should also keep haven assets such as gold underpinned. But, on the other hand, the dollar could find itself remaining largely supported as the other major central banks are meanwhile also dovish. So, there is no real alternative currency that yield-seeking investors will be rushing to pile into yet. The dovishness of the central banks may keep stocks supported, thus reducing the appetite for haven assets. That being said, if and when there is real progress made on Brexit, the Bank of England and the European Central Bank will likely tighten their policies, leading to potential pound and euro strength. Only then may the Dollar Index start to break down more aggressively, boosting the metals' prices in progress.

From a technical perspective, meanwhile, gold looks bullish for it has so far refused to go down meaningfully from around the key $1300 resistance area after spending several weeks consolidating below this level. Think about it like this: if the selling pressure was really strong, why hasn't gold gone down already? So, it could be that gold is gearing up for another potential break higher. Indeed, the bullish consolidation has allowed short-term oscillators (e.g. the RSI) to work off their 'overbought' conditions through time. With the sellers not showing up here in a significant way, the alternative scenario would logically be for price to probe liquidity above $1300 now. If that happens and we see acceptance above $1300, then this could lead to further technical buying pressure in the days ahead. However, if we see a quick rejection from around $1300 after a brief breakout then this could potentially be a bearish outcome. Even so, I would wait for the metal to drop below its range low of $1276.50 before turning bearish on it.

Figure 1. Daily Gold Chart.

Graphic provided by: eSignal.

Fawad Razaqzada

Fawad Razaqzada is an experienced analyst and economist having been involved in the financial markets since 2010 working for leading global FX and CFD brokerages. Having graduated with a degree in economics and leveraging years of financial market experience, Fawad provides retail and professional traders worldwide with succinct fundamental & technical analysis. In addition, he also offers premium trade signals to subscribers, and trading education to help shorten the learning curves of developing traders. He has also been trading on his personal account for many years. Follow Fawad on twitter @Trader_F_R or visit his website at TradingCandles.com.

Title:	Financial Market Analyst
Company:	TradingCandles.com
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Website:	tradingcandles.com
E-mail address:	fawad.razaqzada@hotmail.co.uk
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Will Gold Finally Break $1300 Hurdle?

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