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A New Rising Tide Lifts The Gold Market

(Kitco News) - Feb 6 – Gold prices thrust higher in early trading Monday. The yellow metal continues to rally out of a large "V" bottom base on the daily chart and has garnered fresh strength in the wake of Friday's mixed U.S. employment report, which didn't make the case for a faster pace of Fed rate increases.

This week: The economic calendar in the U.S. is fairly light, which will leave traders focused on fresh comments from Washington D.C. regarding the future direction of U.S. trade policy. Investors are growing wary that depending on what is proposed, the positive economic benefits from tax cuts and deregulation could be eroded by negative impact of future trade tariffs and the potential renegotiation of NAFTA.

Investors will also keep an eye on President Trump's meeting with Japanese Prime Minister Shinzo Abe later this week. There is speculation that President Trump may label Japan a currency manipulator.

Getting Technical
Gold remains the beneficiary regarding the macro-fundamental uncertainty surrounding the direction of new U.S. policies. The short-term trend for April Comex gold futures is bullish.

Positive short-term factors for gold include:

  1. A bullish moving average crossover with the 20-day rising above the 50-day.
  2. Rising daily momentum.
  3. A large "V" bottom off the Dec. 15 low at $1,127.20 an ounce.
  4. A new minor uptrend pattern, with swing low support at $1,182.60.

Key Levels to Watch This Week

Gold bulls thrust through the 38.2% Fibonacci retracement of the July-December sell-off in early trading Monday, which is another bullish signal. The gold contract also faces resistance at $1,237.70, the Nov. 16 high and the beginning of the large "V" bottom. If gold bulls gain fresh momentum to clear these ceilings it would open the door to a fresh rally wave.

Upside targets: include the $1,257.30 and then the $1,288.00 per ounce level in April gold futures, the 50% and 61.8% Fibonacci retracement of 2016 mid-year sell-off.

On the downside: the 20-day moving average at $1,206.20 is initial support ahead of strong swing low support at $1,182.60.
Buy spots: For now, traders are using dips toward the 20-day moving average as buying opportunities.

Last But Not Least: Keep an Eye on the U.S. Dollar Index
The U.S. dollar index has rallied significantly since mid-2014 in large part based on expectations for the start of a significant Federal Reserve interest rate hiking cycle. The market is still waiting for that.

If the Fed fails to deliver two to three rate hikes in 2017, support for the U.S. dollar index will begin to crack. Figure 2 shows there is a lot of room for the dollar to fall if interest rate expectations fail to materialize. See Figure 2 below.

Read more: on the outlook for the U.S. dollar index here > Was The January High In the U.S. Dollar Index A Trump Top?

By Kira Brecht, Kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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