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Gold Talking Points

Gold extends the rally from the end of 2018, with the price for bullion quickly approaching the June-high ($1309), and current market conditions keep the topside targets on the radar as the precious metal extends the series of higher highs & lows from the previous week.

Image of daily change for major financial markets

Gold Price Forecast: Bullish Series Keeps June-High on Radar

Image of daily change for gold prices

Theweakening outlook for the world economy seems to be spurring a flight to safety as global equity prices remain battered, and the shift in risk-taking behavior should keep gold prices afloat as stocks enter a bear market.

At the same time, it seems as though bullion will continue to benefit from the U.S. government shutdown as the ongoing deadlock in Congress saps bets for an imminent Federal Reserve rate-hike, and the central bank appears to be on track to conclude its hiking-cycle in 2019.

Image of fed fund futures

Even though the Federal Open Market Committee (FOMC) expects ‘the economy will grow in a way that will call for two interest rate increases,’ the uncertainty surrounding fiscal policy may push the central bank to endorse a wait-and-see approach at the next interest rate decision on January 30 as Chairman Jerome Powell & Co. ‘see growth moderating ahead.’ In turn, Fed Fund Futures may continue to show the FOMC on hold throughout the first-half of 2019, and the FOMC may come under pressure to conclude its hiking-cycle ahead of schedule especially as households face subdued wage growth paired with cost-push inflation emerging from the shift in the trade policy.

With that said, diminishing bets for an higher U.S. interest rates may keep gold prices afloat, but the pickup in volatility appears to be spurring a change in retail sentiment amid a jump in market interest.

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The IG Client Sentiment Report shows 73.7% of traders are now net-long gold compared 78.5% last week, with the ratio of traders long to short at 2.8 to 1.The number of traders net-long is 4.4% higher than yesterday and 0.4% lower from last week, while the number of traders net-short is 0.3% higher than yesterday and 25.2% higher from last week.

The persistent tilt in retail interest undermines the broader outlook for gold as it offers a contrarian view to crowd sentiment, but recent price action keeps the topside targets on the radar as the precious metal trades above the 200-Day Simple Moving Average (SMA) for the first time since May and extends the series of higher highs & lows from the previous week. The Relative Strength Index (RSI) highlights a similar dynamic as it extends the bullish formation carried over from the previous month and pushes into overbought territory. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Gold Daily Chart

Image of gold daily chart
  • Recent series of higher highs & lows keeps the June-high ($1309) on the radar, but need a close above the Fibonacci overlap around $1279 (38.2% retracement) to $1288 (23.6% expansion) to open up the topside targets.
  • Next area of interest comes in around $1298 (23.6% retracement) to $1302 (50% retracement) followed by the $1315 (23.6% retracement) area.
  • Will keep a close eye on the Relative Strength Index (RSI) finally pushes into overbought territory, with the stickiness in the oscillator warning of higher gold prices as long as it holds above 70.

For more in-depth analysis, check out the Q1 2019 Forecast for Gold

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.