Can gold make it a hat-trick of forming a major low this December?

Sentiment towards gold has improved over the past week or so. The yellow metal managed to end a run of three-week losing streak last week and has started this one on the front foot, too. After its noticeable rise on Monday, gold was little-changed on Tuesday but it was pushing higher again today.

Sentiment towards gold has improved over the past week or so. The yellow metal managed to end a run of three-week losing streak last week and has started this one on the front foot, too. After its noticeable rise on Monday, gold was little-changed on Tuesday but it was pushing higher again today. At the time of this writing, it was trading at $1265 per troy ounce. From its low of $1236 last Tuesday, gold is now up a good $29 or 2.3 percent. But to put this in some context, the metal still remains a good $92 or approx. 6.8% from its high of $1357 hit in September. So, it remains to be seen if the metal has managed to carve out a bottom, or whether this is just a retracement before we see further losses as we head towards year-end. The dollar-denominated precious metal has found support from various sources, chief among them is the dollar, which has weakened against a number of currencies amid the lack of any significant news to support it.  As it was expected, the greenback failed to find any support from news that the Senate passed a landmark plan for the radical tax overhaul. The bill now needs to be approved by the House of Representatives, due to vote later today, before being signed into law by Donald Trump.

Gold could head higher in 2018 if EUR/USD breaks 1.20 barrier

But it is worth pointing out that the previous significant lows were formed in the month of December in both 2015 and 2016. If history were to repeat itself then we could see another major bottom form this December. One reason this could happen may be if the positively-correlating EUR/USD exchange rate pushes beyond and holds above 1.20 next year. Economic data in the euro area has improved noticeably and if inflation were to rise further, say as result of higher oil prices – which is certainly possible – then the European Central Bank may have to tighten its belt quicker than the market currently expects. This in turn could help the euro rise further, underpinning the EUR/USD and undermining the Dollar Index.

Bitcoin’s inability to clear $20K may have also supported gold

Another reason for gold’s rebound could be because of Bitcoin’s inability to clear the psychologically-important $20,000 hurdle. After coming very close to this level on Sunday, the crypto currency has pulled back quite noticeably, falling to a low of about $15800 overnight, before surging back to $17500. Investors were unnerved once again by security issues with Bitcoin as South Korea’s exchange Youbit was forced to file for bankruptcy after a hack meant the exchange lost a huge chunk of its reserves. A growing number of analysts have called Bitcoin and gold as being substitutes for one another. Although we don’t share this view, the recent hype has certainly seen funds flow out of underperforming assets into BTC/USD and other crypto currencies.

Gold still faces key overhead resistance

From a technical perspective, gold’s ability to climb back above the $1261 old support level is a good sign for the bulls. However, despite its recent bullish price action it still faces further overhead resistance around the $1270-$1275 area, where a number of technical factors converge. These include among other things, an old support area, the backside of a broken medium-term bullish trend line, a short-term bearish trend line and both the 50- and 200-day moving averages. Consequently we may get at a reaction if and when price gets to this area. A decisive break above here would be bullish and the bearish trend will technical end completely upon a potential rally north of $1300. Meanwhile support now comes in at $1261, followed by $1251. Should these levels fail to hold price for too long then a drop towards $1200 could be on the cards, possibly in early 2018, with interim supports coming in first at  $1237 and then at $1212, which marks the 61.8% Fibonacci retracement last Decembers’ low.

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