Gold nears 2017 high as dollar slide continues

Gold continues to hit new highs for the year. At a good $1350 per troy ounce, the precious metal is trading at its best level since 8th September 2017.

Gold continues to hit new highs for the year. At a good $1350 per troy ounce, the precious metal is trading at its best level since 8th September 2017. This was the day when gold formed its high at $1357 last year, before dropping $120 or 8.8% to $1237 by 12th December 2017. But fast forward a month and a bit, and gold is now threatening to break above last year’s high. Will it be able to do so? It depends almost entirely on the US dollar. The greenback has today extended its losses after US Treasury Secretary Steven Mnuchin at the World Economic Forum in Davos said, what we all know, that a weaker dollar is ‘good’ for US trade. Mr Mnuchin also added that expected growth in the economy would support the currency in the long term. If he is correct, then the dollar could make a comeback at some point down the line. The dollar may get an oversold bounce in the coming days as the major currency pairs test massive long-term levels, but perhaps its best chance for a comeback may be after 8th February when the US government is expected to run out of cash again. Once the budget is finally passed then the dollar bears may find it difficult to justify selling the reserve currency. But for now, the greenback’s ongoing weakness is helping to support buck-denominated gold. Precious metals are currently ignoring the rallying stock markets. The sharp gains in the major indices may very well be unsustainable, and it could be that investors are buying protection in the form of safe haven gold ahead of an inevitable correction in equity markets. Should stocks correct themselves, then this could actually further support gold, perhaps regardless of what the dollar may be up to at the time. So, overall there are more reasons to be optimistic than pessimistic on gold and indeed silver – at least in the short-term anyway. As a result, we anticipate that gold will probably break above the 2017 high of $1357 in the coming days. The next bullish target beyond this level is at $1375, the 2016 high. Meanwhile support comes in at around $1341-44 area, which was previously resistance. Any move below the next support area of $1325-27 would be a bearish development, however.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.