Gold Price Shines, But It Might Need Silver To Validate More Gains

January 22, 2018

London (Jan 22)  At the beginning of December gold was under intense selling pressure. The dollar was mounting an attempt at a recovery, and the historical inverse relationship between the U.S. currency and the yellow metal caused longs to head for the exit and some trend-following speculators to establish short positions. Additionally, as the third twenty-five basis point interest rate increase of 2017 by the U.S. Federal Reserve approached, the prospects for price appreciation in gold began to look less attractive.

In the final months of 2015 and 2016, gold had put in what was becoming a seasonal pattern of lows and during the first two weeks of the final month of 2017, the pattern repeated. Gold fell to a low of $1236.50 per ounce on the day that the U.S. central bank moved to push the Fed Funds rate to 1.25%, but in the aftermath of the announcement, it began a recovery that continued into January. Just one month after the yellow metal was staring into a bearish abyss, it now it is approaching some critical resistance levels on the upside and gold is back on a bullish path. What a difference a month can make in the world of commodities.

Gold takes off to the upside

Gold found its low in the hours before the Fed increased the Fed Funds rate and it has not looked back.

Click to enlargeDownloads/Gold%20weekly%20for%20SA%201-19-18-min.png 

Source: CQG

Since December 12, the price of the yellow metal has moved $104 high and traded to a high of $1345 level on January 16. Gold posted a gain for five consecutive weeks as it approaches the two critical resistance levels from the past two years. In 2017, gold reached a high of $1358.50 per ounce which is less than $15 above last week high. Above there, the 2016 high at $1377.50 stands as a line in the sand for the precious metal. Gold reached that level in the immediate aftermath of the Brexit referendum, but now it is starting to feel like that high is a magnet for the yellow metal. Gold is finding support from the currency market these days as the value U.S. currency continues to slip compared to other foreign exchange instruments.


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